The portfolio managers use two main types of models: trend following models and diversifying models. Within these two categories the models are further divided into three sub-categories based on their investment horizon: short-term, medium-term and long-term models. Thus, in total the models are divided into six different categories.
The trend following models account for most of the Lynx programme’s risk exposure. These models identify trends on financial markets and invest in the direction of the trend. The diversifying models make use of other signals than price momentum. These models might use different pattern recognition techniques such as machine learning or relative movements between markets and regions and can also use other sources of data than price data. Having a low correlation with the trend following models, the diversifying models act as a complement to the portfolio, with the aim to contribute a more even portfolio performance over time.
Lynx is more diversified than is common among many other managed futures funds. As Lynx also allocates risk to other types of models, a more stable portfolio can be constructed, and the aim is that the portfolio as a whole should display smaller drawdowns when the markets display no clear trends.
The quantitative management concept facilitates comprehensive analysis work. The portfolio managers are of the opinion that the functioning of the markets changes over time. Consequently, continuous development of new models is an important aspect of the activities within Lynx. We are also continuously developing ways to improve our methods for execution of transactions, risk measurement and risk control.