KTM Funds Boosts Marketing Effort, Expands Strategy

Jun 30 2006 | 6:55pm ET

Hedge fund firm KTM Funds is revving up its marketing efforts in order to boost assets under management while at the same time expanding its trading strategy.

The hedge fund, which has historically utilized a market timing strategy to invest in mutual funds, is now adding equities to its portfolio and has brought on Dominic Arnold as v.p. of trading to lead the effort. Kevin Teeple, founder and ceo of the firm, explained that the addition of a new strategy is aimed at lowering volatility.

"Reducing our volatility is always a priority for me. Bringing Dominic Arnold on as v.p. of trading and then hedging his equity experience with our core trading strategy ideally will smooth out the volatility long term," he said. According to a source close to the firm, the fund has been profitable five out of the past six years. Since the firm was founded in 2000, its assets under management have ranged from $33 million at their height to $6 million today.

"No trading system in the world is immune to draw downs, including ours," said Teeple when asked about the fluctuation. "I have to admit that marketing and attracting new clients have not been my specialty and this genetic flaw explains our lack luster assets under management. I am a trader. I focus on one thing and that is generating a profit for our partners."

He also added that some partners have chosen to use the firm as a trading vehicle in itself and that they pull money out and then put it back in. "I don't interfere with their decisions to pull their money as they don't interfere with my trading decisions. I believe that our track record will eventually lure them back for good."

However, the firm has recently added a two-year lockup to its terms in order to avoid such draw downs in the future. While the term "market timing" has been tied to the scandals involving mutual fund firms that were allowing hedge funds to trade after hours, Arnold explained, "it has a bad name to it, but there is nothing illegal [about market timing]…e definitely do not trade after hours."

Charles Van, chairman of The Van Companies, writes in a report that although legal, the strategy has all but disappeared in the U.S. because of the mutual fund scandal. He writes that the term "market timing" refers to the practice of investing short term in mutual funds that are increasing in value, not necessarily to after hours trading. "These funds trade based on a mathematical model that tells the manager when to invest in a given market and when to get out."

Teeple said this is exactly what his firm does. "All successful trading is based on pattern recognition. Our computer trading models, binary tools that can be used for absolute precise pattern recognition, allows us to distill a lifetime of market experience, into mere moments of processing time that can identify these historical market trends and then generate buy and sell signals for us."

John Raymonds, former chairman and chief executive officer of plastic bottling cap manufacture Captive Plastics, has been investing with Teeple for over a year. "I am very impressed with his focus," said Raymonds, who added that Teeple has thus far "outperformed" the hedge fund in which he was previously invested.

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