FREQUENTLY ASKED QUESTIONS

An understanding of financial markets involves constant interaction with our clients and many other stakeholders. Here you will find answers to frequently asked questions. Please let us know if you have any other questions related to our research or products. 

What is a systematic investment strategy?

A systematic investment strategy operates on strictly rule-based investment decisions and does not allow for any discretionary overruling, i.e. it eliminates decision-making based on emotions or subjective biases. Numerous studies show that systematic strategies render continuously higher returns with less risk than discretionary and intuitive approaches.

What parameters are integrated in your models?

We only integrate parameters relevant to the most prominent investor groups such as value, macroeconomic and financial developments, sentiments, reversion, and behavioral finance approaches. For each asset class, we compute a signal by analyzing explanatory indicators through the prism of two key criteria: first, logical, consistent and academically justified influence on the investor’s decisions, and second, strong long-term statistical relevance of the parameter.

Why do you invest in the index and not in single stocks?

Index investing offers built-in diversification across different industry groups, reduces the concentration risk and the portfolio’s volatility Additional benefits are lower transaction costs and higher liquidity. Numerous academic studies, Grinblatt and Titman (1989), Fama and French (2010), show that active investment via stock-picking does not generate consistent advantages above and beyond passive management.

Why do you invest in treasury notes?

The treasury note futures market is the most liquid futures markets in the world with the broadest range of participating investors. It is strongly value driven and thus mean reverting providing ample opportunities for trading the volatility. It also is extremely transparent and sensitive to a multitude of public available data. This gives Tom Capital the chance to produce research signals of high quality.

Why do you use primarily futures for your systematic investment strategy?

A future is a contract or agreement to buy or sell the underlying asset at a specific date in the future for a specific price. Tom Capital does not consume or fulfill the contract, but settles it for the difference between the contractual agreed price and the current price in cash. The transaction costs are extremely low. Tom Capital does not incur any borrowing cost for going short, because it does not exchange any assets. The liquidity is excellent reducing the spread to some basis points. The cash requirements are minimal, only 10% to 15% of the contract value has to be deposited in order to cover the expected price changes. This allows to increase the exposure to over 100% without incurring any borrowing costs. All features combined render the future the most efficient instrument to express a market view, be it long or short.

Why does Tom Capital invest only in large financial markets?

Large financial markets are liquid and have many advantages such as:

  • Low transaction costs (it is always possible to enter or exit any given position without moving the market too much)

  • Transparency (all participants have the same information at a given point in time)

How do you measure risks in your funds?

We assess risk in our funds twofold, by calculating delta-adjusted exposures (DAE) as well as value-at-risk (VaR). We do this on the fund level, on single position level and according to different aggregation criteria to identify and avoid risk concentrations. The risk assessment is done once every working day as well as intraday. In addition to DAE and VaR, we constantly monitor the most important sensitivities, like option deltas of the positions in our funds.

How do you balance your exposure?

The exposure in our funds is built up gradually, along an optimized risk-return profile, and capped at the maximum exposure limit of the respective fund.

What are the benefits of investing in an actively managed fund?

Passive investor normally select an asset class, invest in its index and stick to the investment decision for 1-10 years going through serveral bull/bear cycles. Tom Capital as an active manager assesses the market constantly and adjusts its investment allocation dynamically to its changing assessment. Thus, it can benefit from the daily volatility as well as from the mid- term bear/bull market cycles.

What is a hedge fund?

A hedge fund is a broad and not well defined term covering alternative investment vehicles in general.  “Alternative” means the fund deviates partially or completely from the long only, portfolio management oriented, traditional investment approach. The key characteristics of hedge funds are: 

  • Long and short investing
    Hedge funds try to benefit from a negative forecast by going short an asset. With bonds and equity, this can only be done tactically because the long term positive returns on those asset classes favor the long side. Tom Capital invests short only with a tactical time horizon, using mainly futures and sometimes also options.
  • Leverage (exposure above 100%)
    Traditionally investors are not able to invest more than 100% of their available capital, irrespective of the risk of the asset they invest in. Tom Capital considers carefully the risk/return profile of each asset to invest in and adjusts the exposure accordingly. While the average exposure is around 150%, it can move up to 585% under extremely attractive market conditions. 
  • Neutral market exposure
    The naming “hedge funds” originates in the attempts of the first hedge funds to eliminate the asset class 
    exposure by being equally long one security as well and short another in the same asset class. Tom Capital only takes directional positions on the entire asset class and, therefore, is never market neutral or “hedged” as the name of the categories of fund TCGF belongs to would imply. 

What is leverage?

Leverage is a technique to increase the exposure above 100% of the available funds. Traditionally, leverage involves buying securities with borrowed money. While on the upside the investor benefits over proportionally from any increase in value of the securities, on the downside investor faces borrowing costs and risks to loose proportionally more on the decrease in the securities’ value. Using futures eliminates the inconvenience of borrowing costs but leaves the risk of accelerated losses. Tom Capital is fully aware of the advantages and inconveniences of using futures and manages the downside risk very carefully by conducting long-term back-tests, applying diversification and systematic scaling techniques.

Can I gain with your funds when the market falls?

Yes. In our funds, we have the ability to “go short a market”, and frequently do so.  Short Selling is a technique to profit from the falling price of a stock or market. Done with derivatives, e.g. selling futures or buying put options, it is essentially a directional bet on the overall market, much like a conventional long position but only speculating on falling prices of the underlying asset.

What is volatility?

Volatility is a statistical measure of the dispersion of returns for a given security or market index over a given time period. Volatility can either be measured by using the standard deviation or variance of returns from that same security or index. Commonly, the higher the volatility, the riskier the security.

What is the Sharpe Ratio?

The Sharpe Ratio is a measure for calculating the risk-adjusted return. The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk assumed over a given time period. Generally, the higher the Sharpe ratio, the more attractive the investment.

What is the maximum cumulative drawdown?

The maximum cumulative drawdown is measured as the maximum loss from a peak of a portfolio, index or stock before a new peak is attained. The maximum drawdown is an indicator of downside risk.

What does “scale in” mean?

“Scale in” is the process of successively purchasing more and more shares or futures as the price decreases. Scaling in means to set a target price and then invest in increments as the stock falls below that price. This buying continues until the price stops falling or the intended trade size is reached. Scaling in consistently lowers the average purchase price, thus making it easier to realize a certain profit target. This technique is an integral part of our trading strategy.

Who is the administrator of your funds?

The administrator of our funds is PvB Pernet von Ballmoos AG, a FINMA licensed Asset Manager in Zurich.

How can I subscribe to your funds?

Funds are generally identified with a valor and ISIN number and can be purchased at every bank or broker. For example, the Tom Capital Growth Fund (share class A, CHF) is identified with Valor 25883481 and ISIN CH0258834818.