Enck says proprietary research with multiple simultaneous indicators help guide the allocation decisions Bornhoft and his team make. For example, say proprietary indicators suggest increased volatility is in the offing. This might prompt the team to make a higher allocation to shorter-term traders. If the indicators point to long sustainable trends in the market, this could lead to a bias toward longer-term trend followers.
Risk management is straightforward. "Because we've been providing daily liquidity and daily pricing for these products since inception, and because we have managed accounts, we heavily automate our processes," says Enck. "We see and have access to every trade occurring with every one of these managed accounts. We set up a significant array of parameters to monitor activity. We're looking for obvious things such as style drift and whether each CTA in the portfolio is in balance with previously agreed-upon strategies."
Looking Ahead
Enck says additional MutualHedge offerings will emerge from product development in the next few months. The next one will be a market-neutral commodity fund.
In addition, Equinox is developing a series of managed futures offerings in a format that follows the European Union's regulations of the Undertakings for Collective Investment in Transferable Securities-known as "Ucits." The Ucits format will allow Equinox to market its products to retail investors in member states of the EU. "We are moving forward in that arena," Enck says.