1OAK Liquid Alternative Beta is a systematic cross-asset absolute return strategy which aims to outperform the hedge fund industry on a risk-adjusted basis whilst offering daily liquidity. The strategy was launched in 2012 and trades liquid futures and other instruments on equity indices, sovereign bonds, rates, FX and commodities.

Benefits

Investors in the 1OAK Liquid Alternative Beta strategy can achieve diversified hedge fund-like returns through a single investment with no manager selection risk, low fees & charges and daily liquidity.

Target Market

The strategy is designed for professional investors who are looking to generate positive absolute returns which have only a moderate correlation to equity markets.

Purpose

The strategy may be used as a diversifying or alternative component within a mixed-asset portfolio or where the investor wants to have broad hedge fund exposure.

Characteristics

The strategy will have characteristics similar to a diversified hedge fund portfolio with 7-9% volatility. The degree of correlation to equity markets will reflect that of the broader hedge fund universe and will vary through time. At present the strategy exhibits a positive but moderate correlation to equities.

Investment Objective

Liquid Alternative Beta aims to outperform the broader hedge fund industry, with target annualised volatility of 7-9% and whilst limiting drawdowns.

Philosophy

There exists a very broad range of hedge funds investing across different markets, strategies and assets, with an equally broad range of performance and risk/return characteristics.

However, in aggregate, hedge funds do generate positive absolute returns, which can be seen in the performance of broader hedge fund indices. These returns can be largely explained by identifying the instruments, factors and strategies that hedge funds have exposure to.

LAB seeks to replicate or improve on hedge fund returns through a statistical estimation of the exposures of hedge fund capital. This allows LAB to generate hedge fund-like returns by trading the major factors driving these returns using liquid assets. LAB also aims to lock in a structural outperformance of hedge fund returns due to a lower fee loading, which compounds over time.

Investment Universe

LAB has a broad investment universe comprising liquid futures and other instruments on equity indices, sovereign bonds,
rates, FX and commodities globally. LAB may have long or short positions in any asset class.

Investment Process

LAB utilises proprietary statistical methodologies and portfolio management techniques researched and implemented over ten years.

A statistical estimation of the exposures of hedge fund capital is used to identify the factors that are driving hedge fund returns. Allocations are then made to these risk factors, with positions re-evaluated daily based on rapidly-changing signals, allowing for flexible positioning. The volatility target is an intrinsic part of the allocation process.

The strict implementation of a risk management framework has enabled the strategy to maintain a stable performance and controlled volatility over its life, limiting drawdowns over periods of weak returns for hedge funds. It includes a de-risking process that is used only when the investment management committee considers that there is a potential significant threat to performance, typically in anticipation of a binary event that may have a significant effect on market values or which could cause a significant increase in volatility.

Return analysis

Strategy performance

Statistical analysis