Hedge Fund Uses Japan to Predict International Equity Growth
In 2012, together with Majed Sidani -- a Ph.D. and a veteran in financial research with experience at Lehman, Merrill Lynch and JP Morgan -- Page created SA2 Advisors, a London-based global macro investment management firm.
Their test case was Japan, as the Japanese equity market is "the poster child for why many models in equities don't work." This test case allowed them to find models that were much more responsive to equities.
"Japan still has challenges," Page says. So the country continues to provide them with insights into global markets.
Page and Sidani developed a model for forecasting Japanese equity returns for the long-term, and applied it to 40 to 50 countries, using the back pages of the Economist magazine. The model is designed for a country with declining growth and is applied to emerging economies or developed economies. It has shown to have a very good predictive power.
SA2's funds, the Bellwether Fund Core and the Bellwether Fund Plus, have returned 7% and 15.5% respectively since their February 2013 inception. Both are global fundamental quantitative macro funds, which use quantitative models for multi-asset trading in financial futures and government bonds based on macroeconomic fundamentals, and the Plus fund can be leveraged up to two times. They are listed in Opalesque's EManagers database.
The Core and the Plus funds returned 2.84% and 5.54% respectively in October. Comparatively, the Credit Suisse Global Macro hedge fund sub-index returned 1% (2.5% YTD) and the HFRX Macro: Multi-Strategy Index 0.66% (-3.39% YTD).
The partners at SA2 started trading 17 months ago; the return drivers were fixed-income and equities in Singapore in 2012, and equities in Southern Europe in 2013.
When you trade off fundamentals, there are a number of challenges, says Page. One of them is that you can typically be too early into trades -- a value trap.
"We have learned that one of the ways out of that is to not oversize things and to be very careful," he continues. "We had a small amount of exposure to Spain for the whole 17 months, and in Italy till the end of June.
"But by being early in small sizes, you don't need to have large positions to produce good returns, and that is why we like this marriage of fundamental and quantitative as a style." It is truly SA2's unique style, he adds.
This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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