Steve Shepherd

Global quantitative and systematic asset management firm, Capital Fund Management LLP (CFM), has announced that its CFM IS Trends Trust Class A and CFM ISDiversified Trust were both rated ‘Recommended’ by independent ratings house Zenith.

Commenting on the ratings, CFM’s Head of Asia Pacific, Steve Shepherd said that he was pleased that Zenith continues to clearly recognise the quality of CFM’s algorithms and investment processes, which are based on scientific research and sophisticated information technology systems.

“Australian wholesale investors’ interest and commitment to quantitative-based alternative-risk premia strategies has been steadily increasing, because strategies like trend following, momentum and value have proven themselves to be a way to access returns, as well as diversification, at a competitive fee,” he said.

Mr Shepherd said that alternative beta strategies seek to capitalise on structural inefficiencies in the markets. One example of these inefficiencies is the so-called herd instinct, which can lead people to do what others are doing, rather than using objective information. Such irrational human behaviour can lead to structural inefficiencies in markets – something CFM capitalises on to create performance for investors.

“At CFM we apply a scientific approach to exploit inefficiencies by identifying plausible and repeatable market patterns, and aiming to offer investors low-correlation, cost efficient, liquid investments.

“Over three-quarters of our people are researchers and developers – and we pride ourselves on our culture of creativity and intellectual rigour, so it is pleasing to see Zenith call out our research team’s track record of success, and to describe them as ‘highly regarded’,” said Mr Shepherd.

In awarding the ratings, Zenith cited CFM’s “impressive pedigree in quantitative investing, a highly regarded research team and a model with demonstrated success”. Criteria include investment personnel, security selection, portfolio construction, risk management, organisational strength, as well as risk-adjusted performance. Funds rated “recommended” are deemed strong investments – and typically rank in the first quartile on most criteria.

In conclusion, Mr Shepherd said that CFM intends to continue to expand its presence in Australia, following the opening of a permanent office in Sydney and the appointment of two investor relations directors.

“We are committed to servicing and growing our wholesale client base which includes institutions, wealth management and dealer groups, as well as family offices. We are always pleased to have independent ratings houses, like Zenith, give our funds the tick of approval, and reinforce our view of their quality,” said Mr Shepherd.

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Steve Shepherd

Global quantitative asset manager CFM (Capital Fund Management LLP) has announced the addition of the CFM Institutional Systematic Diversified Trust (“CFM ISDiversified Trust”), one of its alternative beta fund range, to the IOOF platform.

Steve Shepherd, CFM Head of Asia Pacific, said that demand for cost-effective liquid alternatives is growing rapidly:

“Advisers and investors alike are seeking real, not illusory portfolio diversification in a liquid form. With its objective of providing long-term capital appreciation via returns that aim to be uncorrelated with traditional asset classes, the CFM ISDiversified program may answer this need. We are really pleased that more advisers can now access a diversified portfolio of investment strategies that aim to be de-correlated from traditional equities, thanks to the addition of CFM ISDiversified Trust to the IOOF Platform”, he said.

Mr Shepherd explained that alternative beta strategies seek to identify and exploit risk premia or behavioural anomalies in the financial markets, via a rules-based quantitative approach to investing.

“Traditionally, alternative beta strategies have been associated with hedge funds. Alternative beta strategies aim to produce returns in both rising and falling markets by using ‘alternative’ strategies, which aim to be decorrelated with traditional asset classes”.

The problem for advisers and their retail clients is accessing these strategies in a meaningful way. This is where CFM ISDiversified Trust fills the gap, offering a diversified portfolio of well-documented and persistent alternative strategies, but in a liquid form which advisers can easily access and at a lower cost than traditional hedge fund investments,” he said.

In addition to its listing on the IOOF Platform, CFM ISDiversified Trust is also available on seven major platforms: Macquarie Wrap, Netwealth, Colonial First State, BT Financial, Hub 24, Mason Stevens and Powerwrap. It has a ‘Recommended’ rating from both Lonsec and Zenith and is distributed in Australia through Winston Capital Partners.

In conclusion, Mr Shepherd said that alternative beta strategies may be a way to achieving portfolio diversification.

“Advisers and investors understand that true diversification is a key element in portfolio construction – but finding this diversification can be challenging. Alternative beta strategies such as the ISDiversified program are themselves diversified, but more importantly, have shown a low level of correlation to market movements in the way that equities and fixed interest are, spreading the risk and diversifying the portfolio,” said Mr Shepherd.

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Mr Yetman’s appointment and the establishment of Capital Fund Management LLP Sydney branch will enable CFM to better service its  growing institutional and retail businesses in Australia. Mr Shepherd said that the addition of Mark to the firm will bring a positive boost to CFM’s Australian efforts.

“The investor relations role is a crucial position as we continue to build our presence on the ground in Australia. Happily, we have found the perfect fit in Mark, who has a detailed understanding of alternative beta strategies and their benefits. In addition, Mark has a great deal of experience with institutional investors as well as financial advisers in the Australian and the wider Asia-Pacific markets, and has a track-record of successfully growing a business,” said Mr Shepherd.

Prior to joining CFM, Mr Yetman spent 13 years at Dimensional Fund Advisors, most recently as Vice-President, Head of Institutional Sales. During his time at Dimensional, Mr Yetman was instrumental in raising and retaining assets under management, and transforming Dimensional into one of the top-10 US-based managers operating in Australia.

Speaking about his role at CFM, Mr Yetman said he is excited to be joining a company known as a pioneer in alternative beta strategies.

“CFM has a track-record of over 27 years at the cutting edge of alternative beta strategies and, in my opinion, offers some of the best funds in the market. The robust academic focus really appeals to me, and I am also looking forward to working with the excellent team of people I have met at CFM.

“At the moment we have over US$11 billion in funds under management, principally from institutional investors. However, demand from wealth management and dealer groups, as well as family offices, is growing exponentially now that our funds are available on seven major platforms: Macquarie Wrap, Netwealth, Colonial First State, BT Financial, Hub 24, Mason Stevens and Powerwrap. I have a keen focus to further improve our distribution, and therefore access, to alternative beta strategies for both institutional investors and advisers,” said Mr Yetman.

In conclusion, Mr Shepherd said that the opening of the new office, and the appointment of Mr Yetman are the next developments in CFM’s continued commitment to Australian investors.

“The portfolio diversification benefits of alternative beta strategies can’t be underestimated, particularly in volatile times, and I’m pleased that we can offer them to more investors,” he said.

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Steve Shepherd

Australian financial advisers are demanding low-cost, easily accessible alternative beta strategies as they seek to diversify portfolios and reduce their correlation to equities in face of ongoing concerns around risk.

That’s according to Steve Shepherd, Head of Asia Pacific for alternative beta manager Capital Fund Management (CFM). Mr Shepherd says demand for the CFM IS Trends Trust (CFM IS Trends), which offers investors a global diversified exposure to long term trend following strategies, has been growing steadily since it was launched in Australia in July this year.

“Financial advisers want to offer their clients alternative investment strategies, which provide diversification benefits beyond indexing. Long term trend following provides diversification benefits to portfolios. It is a strategy which takes advantage of trends in 5 global asset classes and in over 100 markets, bringing a diversifying strategy to portfolios. It has the potential to improve portfolio returns and reduce drawdowns,” said Mr Shepherd.

Mr Shepherd explained that recent ‘Recommended’ ratings by Lonsec and Zenith, and the addition of CFM IS Trends to the HUB24, Netwealth and Macquarie Wrap platforms, means that more investors can access the fund, and that advisers have confidence that it is true-to-label.

“At the same time, our fees are very competitive. Lonsec actually stated that CFM’s lower fees give it the potential to disrupt what has been a high margin sector,” Mr Shepherd said.

Mr Shepherd went on to explain how alternative beta strategies work and why they perform an important diversification role in a portfolio.

“Alternative beta strategies seek to identify and exploit alternative betas, or risk premia, via a rules-based, quantitative approach.

“They are strategies which have historically been associated with hedge funds, which aim to produce ‘absolute returns’ – in other words, performance in all market conditions, regardless of whether the market is rising or falling.

“Portfolio diversification is improved at the same time, because alternative strategies look to produce a return profile which has little or no correlation to traditional asset classes,” he said.

In conclusion, Mr Shepherd said that CFM’s point of difference is the rigour of the academic techniques used to stringently test every investment strategy, and CFM’s ability to harness the opportunities on offer from massive shifts in data proliferation globally.

“This is how we identify the diversified, liquid and cost effective scalable strategies more and more investors are looking to invest in,” he said.

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Speaking about the decision to launch such a product, Steve Shepherd, Head of Asia Pacific, CFM, said that demand for long term trend-following and managed futures programs in Australia is growing exponentially, as advisers and investors alike seek real portfolio diversification, in a low-cost and liquid form.

This is highlighted by IS Trends Trust already being awarded the coveted “Recommended” rating by major ratings house, Lonsec. Lonsec notes that, “by undercutting the competition on fees, CFM has potential to disrupt a high margin sector”.

Mr Shepherd explained that IS Trends Trust is a diversified and managed futures trend-following trust, which capitalises on the fact that much of the returns from managed futures strategies can be explained by long term trend-following.

“Trend following has been shown to work for the past 200 years – it’s a strategy which takes advantage of trends in a large range of global assets and markets”, he said.

Long Term Trend Following is the core of many managed futures and CTA programs and is a well-known strategy amongst Australian financial advisers and investors.

According to Stephen Robertson, Managing Director of Capital Fund Management LLP’s Australian distributor, Winston Capital Partners, “CFM’s IS Trends Trust is a welcome addition to the Australian market.

Alternative beta strategies have been shown to provide strong returns over the medium to long term and are designed to perform in both rising and falling markets – all with a low correlation to traditional asset classes.

Financial advisers have been increasingly asking us for competitively priced, quality options in this space, but these have been few and far between.

And that’s where we believe IS Trends Trust may have some added value – it’s a managed futures trust that provides investors with access to long term trend-following in 5 asset classes in over 100 different markets. It is diversified and plays to the long term strength of CFM,” he explained.

With the launch of the CFM IS Trends Trust, investors will have two Unit classes to choose from. Class A has a 10% volatility target and class B has a 15% volatility target. Class A has a 0.6%pa management fee (capped MER of 0.8%pa) with 10% performance fee and Class B has a management fee of 1.125%pa (Capped MER of 1.45%pa) with 0% performance fee. Under RG97 these competitive fees will be welcomed by Australian advisers, managed account programs, wealth based multi manager funds and investors.

The CFM IS Trends Trust has already received a “Recommended” rating by major ratings house, Lonsec. Lonsec highlighted that CFM IS Trends Trust is well designed to provide a pure ‘trend following’ strategy and is “managed by CFM group’s high quality and experienced investment team which has a long and successful heritage in active quantitative hedge fund investing.”

In conclusion, Mr Shepherd said that “there is no question of the power of managed futures strategies in creating diversified portfolios, and that a research-based quantitative approach is an efficient way to access them”.

“CFM is one of only a handful of global investors to apply academic techniques to stringently test every investment strategy – and to be at the vanguard of the opportunity on offer from massive shifts in data proliferation globally.

“Our strategies are quant-based and well diversified across and within asset classes and markets, and executed with our systematic trading strategies.

“We have no doubt that our latest Australian Trust, IS Trends Trust, will provide advisers and their Australian clients with true diversification and access to the benefits of “long term trend following across multiple asset classes”.

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Commenting on the addition of CFM Institutional Systematic Diversified Trust to these major platforms, Head of CFM Asia Pacific, Steve Shepherd said advisers and investors alike are increasingly embracing the benefits of diversified alternative beta strategies as an essential part of their portfolios.

“Demand from advisers for CFM ISDiversified Trust has been growing, so we are really pleased that Macquarie and BT have given us this vote of confidence, and that advisers will now be able to access our fund more easily,” he said.

CFM is a pioneering global player in the alternative space, with a long track record.

They apply rigorous academic techniques to every investment strategy, and have been among the first to seize the opportunity on offer from massive shifts in data proliferation globally. Their alpha and alternative beta strategies include trading liquid financial instruments across global markets, including futures, equities, bonds, options and spot and forward foreign exchange.

Mr Shepherd explained that alternative beta strategies seek to identify and exploit alternative betas, or risk premiums, via a rules-based, quantitative approach.

“These kinds of strategies have historically been associated with hedge funds – which aim to produce ‘absolute returns’, in other words, to perform in a wide range of market conditions.

“Hedge fund managers employ a wide range of investment strategies not always available to other investors – and these ‘alternative’ strategies produce a return profile which seeks to be
un-correlated to traditional asset classes,” he explained.

Some of these alternative strategies have become well-established, such as long term trend following, and CFM thus believes they can be classified as alternative beta.

The CFM ISDiversified Trust combines a number of such well-established alternative beta strategies which are believed to persist over long periods of time, to provide some of the benefits of traditional hedge funds but in a lower cost, more liquid format.

In conclusion, Mr Shepherd said that the importance of diversification in a portfolio is key, particularly since the Global Financial Crisis (GFC), when asset classes previously thought to be uncorrelated moved together in a way investors did not expect.

“That’s where alternative beta strategies play such an important role. The strategies themselves are highly diversified.

“This is why we believe they can be used to lower volatility and smooth out returns seeking to provide sustainable returns over time, in a transparent, systematic way.” he said.

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