Manager Weds Long-Only, Hedge Overlay Strats

Mar 2 2007 | 11:42am ET

Retail asset management firm Watauga Equity Management is looking to get in on the institutional game with a new strategy that combines a long-only strategy with a hedging overlay.

David Rogers, founder of the firm, which currently employs both long and short strategies, is shopping his “convergence fund” model to prospective seed investors and incubators. He is also speaking with a limited number of long-only hedge fund managers that are looking to add significant alpha and reduce adverse asset volatility.

According to Rogers, his convergence model marries the traditional long-only approach with Watauga’s proprietary studies, and establishes the probability of future overall market direction with approximately 83% accuracy. His fund would utilize exchange-traded funds to “neutralize” the prospective impact of overall market declines on the long portfolio.

Rogers said his model is highly scalable, “up to roughly $10 billion,” making it appealing to pension, retirement system and insurance company investors.

“What we are doing is taking everything that the institutions have already bought into— traditional buy-and-hold strategies—and making them better,” says Rogers.

Rogers says that the only risk that the model adds is potential opportunity cost. For example, when the fund puts on the ETF short position, or buys inverse ETFs, it cuts off all or some of the upside of the long portfolio if the overall market keeps going up.

“But when you are mostly right about market direction, that occasional opportunity cost is inexpensive compared to the longer-term alpha you add. In our mutual fund asset allocation services last year, we were up 42% after fees–and in 100% money market for more than a third of the year.”


In Depth

Q&A: Jeff Eaton Talks Capital Raising, CalPERS And The Secondaries Market

Oct 14 2014 | 10:16am ET

Global placement agent Eaton Partners has raised close to $60 billion for some of...

Lifestyle

MacDonald-Korth Offers Insights Into Paintings Bought, Sold By Hedgies

Oct 7 2014 | 9:00am ET

Definitive and complete ratings require an in-person examination of an artwork,...

Guest Contributor

PAAMCO: European Equity Exposure - Challenging Year, But All is Not Lost

Oct 16 2014 | 4:12am ET

European equity hedge fund managers have had a tough time so far this year. The...

 

Videos

Editor's Note

    Must Attend Hedge Fund Charity Events For October

    Sep 30 2014 | 9:29am ET

    The crisp Autumnal days of October are upon us, and so are a few of the hedge fund industry’s favorite charitable events. If you have never been to Rocktoberfest, well, you are missing out. And for a quieter evening of sipping and socializing, stop by HFC’s Wine Soiree. Read more…

 

Futures Magazine

October 2014 Cover

Deeply flawed risk benchmark

Most traders agree that proper risk management is the key to successful trading. However, many traders depend on the deeply flawed measure of standard deviation as a benchmark of risk. Here we put it ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.