Sperandeo to launch multi-asset index

June 24, 2009

Victor Sperandeo, chief executive officer of Enhanced Alpha Management and the Royal Bank of Scotland have partnered to launch a new long short strategy index designed to deliver absolute returns. The Trader Vic Index (TVI) is a managed futures index based on commodities, rates and currencies, and is intended to be negatively correlated to the performance of equities and credit.

The TVI is a managed futures product, but unlike most other managed futures products, it offers complete transparency. It also offers daily liquidity, which most managed futures products lack.

Half of the index portfolio is allocated to commodities futures split across six sectors, including energy, livestock, softs and precious and industrial metals. The remaining 50% links to interest rate futures and global currencies. The weightings of the 24 components, which are permanently fixed, were determined according to production for commodities. Gross domestic product was used to establish currency and rate weightings, amongst other factors such as historical volatility.

Each month the strategy allocates a long or short position to every sector, dependent upon the performance of its exponential moving average, which is calculated using a heavier weighting on the more recent data. The only exception is energy, which is always either long or neutral, due to the potential “risk of ruin” that can arise from shorting, rather than because Sperandeo is bullish on energy.

Back testing has shown the index to provide a positive return 98% of the time over a 12 month rolling period, says the bank, which also say it takes less time to recover from draw downs owing to the possibility to take short positions on sectors.