QFS Asset Management – taking a unique view on the business of managing money >>>
managing the process and contributing his ideas and skills.
Jim: We are pursuing a business plan to build up the research team slowly and steadily over the coming years. We enjoy a marvellous legacy of a rigorous research tradition. We have an extensive library of proprietary research the firm has done over the years, and a team of senior researchers trained in and committed to our research process. As we expand the team, our goal is to both maintain our research tradition and enhance our pace of innovation. Consequently, our hiring process is quite selective and we plan to grow the team slowly over time, interviewing doctoral level researchers from both finance and non-finance backgrounds. We hire for both strong skills and training and for new ideas and perspectives.
What asset classes does QFS currently trade and what percentage of your business lines are focused on currencies?
Te QFS Currency Program trades currencies through OTC forwards and options. Te QFS Fixed Income Program trades sovereign debt bond futures and futures on short-term interest rates (such as Eurodollar and Euribor rates). In addition to currency forwards and bond futures, the QFS Global Macro Program also trades equity index futures and commodity futures. We trade currencies directly in the QFS Currency and Global Macro Programs, but QFS’s research on all asset classes benefits all of QFS’s investment strategies, even if we don’t explicitly trade a specific asset class in a particular strategy.
How does Risk Management influence and shape your overall investment philosophy?
Karlheinz: Tere is an old axiom in our industry. Tere are only two things you can really control: Risk and Fees. So, you better get those right. We believe we do a good job on execution costs for our trading and we really focus on risk. Most money managers build their methodologies from the question “what return do I want?” We turn that upside down and start by asking how much risk we want to have in the portfolio. After we’ve established a risk budget, the market will tell us what the expected return is at any given point in time. Everything we do after that is to manage the expected return: our trades embody our processes’ reaction to shifts in expected return opportunities within a determined risk budget. Jim will discuss our Drawdown and Scaling Technology later in the interview.
What currency programs does QFS offer and how have they recently been performing?
Karlheinz: QFS offers one standalone currency product, the QFS Currency Program. It can be accessed through various structures or one of many platforms. Performance has been strong as we have moved through the period of Great Deleveraging (July 2007 – April 2012). Over this time frame the QFS Currency Program has an annualized return of 9.14% on a composite net basis. Tis has been a very difficult period for traditional beta exposures, which is why the QFS Currency Program acts as a tremendous portfolio diversifier. Additionally, we offer traditional and alpha currency overlay and bespoke client structured mandates.
What are the main factors that drive your firm’s currency investment decisions?
Jim: Two major themes drive our approach to investing in countries via currency markets:
Te first macroeconomic thesis is that divergences in growth from expectation drive capital flows to their uses of highest marginal productivity across the globe. By identifying such shifts at the business cycle forecast horizon, we endeavour to anticipate future currency movements. Tat is, as our signals detect fundamental macroeconomic divergence, where one economy is projected to accelerate from its prior expected growth path, our forecast anticipates an appreciation in that economy’s currency. On the other hand, our forecast falls when we detect deceleration relative to a prior expected growth path.
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