Tuesday, 27 September 2016
Last updated 2 hours ago
Apr 2 2014 | 5:03am ET
Kevin Miller, founder of 1900 Investments Asset Management, has found the sweet spot with light sweet crude.
Miller's long-short Dynamic Oil Strategy, which trades only West Texas Intermediate (WTI), launched in 2012 and has just opened to outside capital. The strategy has returned 105% since inception—including a 64% return last year—and is up 6% year to date.
Miller said he chose WTI for its “natural volatility.”
“[T]here's this natural band where crude oil trades...from the low '90s to the low 100s,” Miller told FINalternatives in a recent phone interview. “The producers don't like it when it gets too low and the larger consumers don't like it when it gets too high, so to me, it naturally oscillates back and forth so you know where you're playing.”
Miller has been managing money on a separate account basis under his registered investment advisor since 1996. During the 2008-2009 crash, he said, they were “very good at managing downside risk for our clients because we have discretion on the accounts, and so I wanted to incubate a way where not only could we just pull the money out but start to make money if we can identify that markets are heading south.”
The result was 1900 Investments Asset Management, and the first product to emerge from that incubation process is the Dynamic Oil Strategy, which combines quantitative and discretionary approaches:
“We like to say that it's 90% quantitative and 10% discretionary,” said Miller about the managed futures strategy. “We have the quant model that gets us to the point of decision and then we believe that the human element, when to pull the trigger, is important. Because the investors can invest in anything they want on the planet, and they're looking for the extra-special manager that has the ability to provide alpha. But the quant model takes us all the way down to decision time and then the human takes over.”
The fund is two-times levered and trades only the current month spot price of WTI so “there's no spreads there's no cracks, there's no hedging,” said Miller, “we either believe that we're going up or down and we participate fully...
“What we like to tell investors is that all our work is to identify, verify and participate in the oil market. So we identify when a turn may occur, we verify that...there is a high probability that it will turn, and then we participate. And once we participate we have our risk metrics in place so we always can control the downside as best as possible.”
Miller, who began raising capital for the fund six months ago, said they've had traction with family offices, smaller institutions, ultra-high-net-worth individuals, larger registered investment advisors and platforms.
“We think that we'll have a soft close at $250 million,” said Miller.
So positive has been the response from investors, Miller is preparing to move from Virginia to West Palm Beach Florida where his firm has “put in our operational structure so that we can grow.”
Minimum investment in the Dynamic Oil Strategy is $1 million, fees are the standard 2 and 20, and 1900 Investments is currently incubating several other commodities products, which the firm expects to launch early next year.