INVESTMENT METHODOLOGY
The Program has a sophisticated and robust approach able to capture trending behavior whilst continually managing risk. The strategy is the result of many years of trading experience, research and development by the Balfour Capital Group research dept. and includes many innovative features that are unique to Balfour Capital Group in the quantitative space.
The Program utilizes proprietary linear strategies for the identification of trends and movement in market prices. These are based on Digital Signal Processing (DSP) techniques used to identify a variety of cycles over multiple time frames.
The Program blends the linear DSP approach with a non-linear Pattern Recognition (PR) methodology used to identify significant turning points in trends where traditional trend following systems can be slow to respond. The linear and non-linear, DSP and PR strategies take advantage of independent informational subsets from price data and therefore complement each other to provide a more complete description of market behavior. The combination of the strategies results in an automated trading strategy with a trader style response at important junctures in the development of any price action.
The DSP approach relies on the supposition principle in that complex wave forms are composed from multiple wave forms. This is illustrated by the graphic to show how successive waves of different frequencies can be combined to produce a complex wave form that starts to resemble a price. The DSP technology allows the process to be reversed to extract frequencies from price data.
The Program also employs a proprietary portfolio weighting technique that re-balances the portfolio to target diversification. The approach results in an adaptive portfolio that seeks opportunities in uncorrelated markets which helps to even out the irregularity of price trending behavior in markets.
INVESTMENT PHILOSOPHY
Underpinning Balfour Capital Group’s investment philosophy is the concept that financial markets do not appear to be efficient and experience persistence of behavior in the form of price trends. This can be somewhat explained by influences of crowd behavior, information absorption delays, changing fundamental drivers and the macroeconomic evolution of global economies.
Balfour Capital Group attempts to capture price trends over multiple time horizons for a globally diversified portfolio of assets. Price trends are not smooth and market movement is not evenly distributed through time and is in itself quite complex. One key differentiator for Balfour Capital Group in this space is that Balfour Capital Group’s research recognizes this and models complex price behavior with a highly unique blend of proprietary linear and non-linear strategies. These strategies are fully automated, and Balfour Capital Group believes are better able to deal with price behavior such as abrupt price reversals and variable range conditions.
The advantage of automated trading systems is that they deliver a consistent, disciplined trading approach that not only enhances risk control but opens up a wealth of historical data for analysis and research. The certainty of action that is delivered from automated trading systems means that one can be certain about their trading actions on past data. A researcher can then instigate experimental investigation that leads to the discovery of potentially persistent phenomena in markets.
RESEARCH
Research and model development is fundamental to our approach. The research team has over 50 years combined research and development expertise in the managed futures industry. The team has complimentary skills sets that blend trading intuition with quantitative mathematical skills.
The team employs a disciplined research process which follows scientific method. Trading and systematic experience guide our research goals which are confirmed by the removal of any form of judgmental bias in the analysis of research results. The strategy includes many unique and innovative features, taking ideas from many different branches of science and engineering. All elements of the strategy are backed by rigorous and extensive testing that show consistency over many time frames and environments.
The research team continue to enhance the strategy to keep pace with changing market environments and to retain our competitive edge.