Our Strategy
The GW Systematic Volatility portfolio strategies seek to generate alpha using US Equity index volatility instruments by leveraging internally developed trading models and a rules-based investment process.
The portfolio aims to produce risk-hedged, excess return with low correlation to broad market indices and makes the strategy ideally suited as an overlay. The strategies effectively buy or sell insurance premia that price the uncertainty in index movement resulting from market factors.
High Sigma
High Sigma is a very short-term option put and call writing strategy for investors seeking aggressive growth. High Sigma events, collectively defined as a 3-sigma to 3.5-sigma move, “should” occur every one-to-seven years if it is assumed that market returns follow a normal distribution as represented by the familiar bell-shaped curve. Such moves are regarded as “tail events” because they are extreme and therefore fall into the tails of that bell-shaped curve (the far left or far right portions under the curve). While the normal distribution assumption is extremely useful and convenient for many reasons, it is not an accurate reflection of how markets move. Therefore, a 3-sigma event may occur more often than would be “expected”, statistically speaking.
The stock market’s expectations for future volatility is most often described using the VIX Index, which is derived from the prices of S&P; 500 index (SPX) options. The VIX spikes over brief periods when the S&P; 500 reacts to adverse events. After a spike occurs, the VIX has a strong tendency to “mean-revert,” to fall back to a lower average level that represents a normal market. When a (high sigma) tail event occurs, this mean-reversion pattern represents a profitable trading opportunity.
ITRS
The ITRS is a quantitative, rules-based, short-term options strategy for investors seeking aggressive growth. It is a market-neutral strategy, equally deployable in bull and bear markets. The strategy trades calendar events such as U.S. economic releases and Federal Reserve meetings, among others. The strategy presumes that specific past behaviors of market participants will periodically recur. The strategy uses historical data to detect and act upon the recurrence of tradable behavioral patterns within data. The strategy seeks to profit from intra-day and intra-week price trend reversals on US equity indices such as the S&P; 500, The Russell 2000, and the NASDAQ 100. Indices represent broad market segments, and offer improved predictability of price behavior, largely free from idiosyncratic movements unique to individual stocks. The strategy holdings are typically held for very short periods. Most positions coincide with U.S. economic announcements such as GDP, ISM, CPI, Employment, Fed. days, etc.
The strategy is tailored for accredited investors with a high risk tolerance while seeking aggressive growth, and optionally desiring maximum liquidity. The strategy can be used standalone in a portfolio or as a risk hedging overlay to other portfolio strategies due to its low correlation to most others.
Alternative
These strategies allow investors the opportunity to profit from a vast cross section of the global economy through equity ownership in companies in various industries and sectors ranging from utilities to technology. As vast as this investment arena is, there are many other avenues available for an investor to tap into other parts of the economy previously unrepresented in the portfolio. These include Fixed Income, Commodities, Currencies, Energy and Real Estate among others.
Exchange-traded funds, or ETFs, have equipped the individual investor with unprecedented access to powerful alternative investment strategies. GW ETF expertise provides its clients the ability to buy an entire sector with one fund, profit from commodity prices, and employ leverage and shorting to be effectively accomplished with ETFs in the energy sector. This approach allows the investor to profit from macro driven investment themes without betting on the outcomes of single companies.