NEWS - 32

Interview: Oliver Prock – Salus Alpha

Nov 20, 2014,

Mr. Oliver Prock,
Founder, CEO & CIO of Salus Alpha

Stockholm (HedgeNordic) – Founded in 2001, Swiss based Salus Alpha was an early adopter in terms of offering hedge funds in a UCITS compliant format. Thanks to their UCITS wrappers, Salus was brought into the Swedish premium pension system PPM in 2009 as one of only a very few hedge fund companies. The company´s flagship strategy, Salus Alpha Directional Markets (DMX), is a Managed Futures strategy that has been trading live since 2003 with highly competitive performance numbers for its niche. HedgeNordic took the opportunity to let Oliver Prock, the founder of Salus Alpha explain the strategy in more detail. And here is what he had to say:

HedgeNordic: What is the current AuM of the strategy, how much is in the fund/managed accounts? What is the split between institutional and retail investments?

Oliver Prock: We currently have a strategy AUM of $250million of which around $50million is in the UCITS fund. The balance is split between single managed accounts and investors who have come in via the DB Select platform. We are pretty evenly split between institutional and retail investors although we are proud of the infrastructure that we have in place that has been found more than satisfactory by the most sophisticated institutional investors. In addition, our regulated UCITS fund continues to pave the way in the face of ever tightening regulation in the CTA space.

HedgeNordic: What fees are charged on the fund level? (If differences in fees charged for different share classes kindly mention these)

Oliver Prock: Our fee structure is very simple. For single managed account investors and investors via DB Select they are 1.25/20. Fees for investors into the UCITS fund are 2.25%.

The DMX strategy is described as “adaptive” going from trend to countertrend and short-term to more longer term depending on your forecasting. In what periods do you expect the strategy to over/underperform a more traditional trend following strategy?

Being “adaptive” means that we have demonstrated over our 11 year track record that we outperform a traditional trend follower in almost every market environment. 2008 was a great year for most traditional trend followers, as it was for us and we returned 63% net to our investors. In 2009 when most trend followers gave back a large portion of their returns earned in 2008, we ended the year again in positive territory, thereby demonstrating how we successfully protect capital during periods that are otherwise unfavourable to traditional trend followers. This we would say would be an important differentiator between how we behave and how most other CTAs behave. A traditional trend follower looks for trends and it is then that it makes it’s returns. When there are no trends it will often lose money, hoping to make up these losses when trends return. Directional Markets on the other hand also enjoys trending markets but when the market is trading sideways or is “whipsawing” our strategy is behaving in a contrarian fashion, reducing exposure, and we continue to generate returns.

HedgeNordic: How do you exlpain your outperformance in 2004?

Oliver Prock: I guess the answer is in the adaptive style being able to trend follow and being able to be contrarian

HedgeNordic: You have been trading the strategy since 2003, has the system undergone any significant changes over time and if so what are these changes?

Oliver Prock: Since 2003 the strategy itself has remained largely unchanged. We have added some markets but the strategy has stayed true to its design, being able to adapt to different market environments. Before 2011, we would have said that there was no market environment that we could not handle. Since 2011, as has been widely discussed in the CTA world, global markets have structurally changed with the most important difference being the politically motivated manipulated environment that has caused problems for many systematic managers. We have dealt with these changes proactively; not by changing our model but by changing the way we execute our trades in terms of optimizing time to place an order to market. This “enhancement”, that we implemented in 2012 has had a profound impact as it has enabled the model to effectively deal with the new manipulated market environment. Our adaptive strategy is now, once again able to apply itself “full throttle” to the new environment. Being “adaptive”, we are not locked into pre-determined time frames as many CTAs are. We use no technical analysis in our trading. We are a statistical, price-forecasting model that alters its style of trading according to the market conditions that it finds itself in.

HedgeNordic: The performance of CTAs has been “flatish” ever since the record year in 2008. This year however CTAs are once again in the spotlight with many strategies outperforming the hedge fund industry as well as global equities. What do you see as the explanation to the long period of non-performance and the sudden pick up?

Oliver Prock: The simple explanation for the “flattish” period and the recent pick-up in performance of many CTAs is the recent reduction in outside influences in the markets. QE is coming to an end. Politicians are less involved in the markets and frankly, trends are being allowed to run their course.

HedgeNordic: What do you see as the unique characteristics with the DMX?

Oliver Prock: Without wanting to repeat what I said earlier, what makes us unique is that we broke away from the approach of using technical analysis more than a decade ago. Our stratgey is based on probabilities and uses statistics to forecast future prices. The accuracy of those forecasts help determine our level of conviction to each of the 70-100 managed futures markets that we trade. The net result of this process is that we cannot be described only as a long-term or short-term trend follower or as contrarian. What makes us unique is that we are all of these but only when it is appropriate to be so. We adapt our trading style depending on the environment that we find in each market that we trade. Our portfolio is built on a bottom-up basis so at any one time part of the portfolio could be trending and part could be contrarian. We know of no other manager that can do this, and we believe that our risk-adjusted returns are as a result superior to other managers. Not only this, but our correlation to other managers tends to be very low, due to the very different, yet proven way that we trade.

HedgeNordic: What is currently the strength of your forecasting signals, what kind of market environment is the models telling you lies ahead?

Oliver Prock: We do not look further out than tomorrow’s prices, but the strategy will quickly react to whatever environment it encounters. It has done so now for eleven years and we see every reason for it to continue to do so. This year so far, for example, we coped brilliantly with what was widely considered a tricky market environment in the first six months. We consistently put in good returns whilst others were finding it tough. We are now +18% to end of October and are confident that the pattern will continue.

HedgeNordic: Looking at the margin exposure, almost half of the risk is within equities, is that by design or a reflection of current trends (ie is the graph  a snapshot or a longer term average?)

Oliver Prock: Let me correct you here, please. Our portfolio is always very diversified and will within certain risk management constraints, go to where it sees, on a “probability” basis, the most likelihood of being able to predict the future price of that market. Our presentation contains a snapshot of a portfolio of Sector Margins divided by total margin. Here is an example: You have three sectors A,B,C with 10% total margin and 3.33% margin each. So your cake will show 33% Sector A, B and C. Now you close Sector C which is actually a risk reduction and now there is only 6.67% total margin with 3.33% margin in Sector A and B. Your cake will now show 50% Sector A and B looking like more Exposure to Sector A and Sector B but actually it means you have less total risk in the portfolio.

In reality, the portfolio is very active and can alter dramatically over a short timeframe but generally will include a broad number of sectors, without special emphasis on any one. If equities are strongly trending then we may put a higher allocation to them but this is certainly not the current case. An integral part of our inbuilt risk management is that returns are smoothed out by diversification. Unlike some other managers we have not put special emphasis on eg cash equities but our track record reflects the same model with the same rules governing diversification since inception.

HedgeNordic: Looking at past events, how quick is the system to close down position/sector/portfolio? When was the portfolio last closed out?

Oliver Prock: We have a control within the strategy that will, on certain conditions, immediately close out positions, then sectors and lastly the entire portfolio. Fukashima was a good example of this control being put to work. 9/11 was another example. We have never had to liquidate the entire portfolio in one go.

HedgeNordic: Finally, do you have any market wisdom to share with us?

Oliver Prock: Investors believe that CTA’s only made money being long in bonds in the past twenty years. I do not think it is so simple but next year could be an interesting year to test that statement. We think that even though there will be no pressure on bonds prices since the FED will instead of selling off the bonds from the balance sheet prefer to let them mature, there will be some technical opportunity next year and we will very likely see falling bonds prices. In any case it looks like we are probably positioned more on contrarian side and not so much on trend side in 2015. I am looking forward to talking to you about this in a year.

News @ hedgenordic.com

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NEWS - 31

Capital weighted benchmarks might have a negative effect on managed futures, says Salus Alpha's Ritesh Jain

By Ritesh Jain

June 5th, 2014

Ritesh Jain, analyst at Salus Alpha Capital, has looked at views on bench-marking as they affect managed futures funds.

Equity markets are today scaling new highs after a six year bull run, and many are asking how long it will continue. Commodity markets are struggling with high volatility and most trend-following managed futures funds are presently underperforming equities. Given the current risk-on/risk-off environment, systematic, trend-following strategies are struggling to perform. But does this mean there are no trends in the current low interest rate environment that they could be profiting from?

Paul Tudor Jones, a billionaire veteran of the industry, recently called the trading environment "as difficult as I've ever seen in my career." Tudor Investment Corp's main fund is down about 4% this year.

Most trend-following hedge funds have lost money, possibly because they were not able to be on the right side of the trend in a rallying market with a strong run-up in several commodities this year.

Sol Waksman, founder and president of BarclayHedge, says "trendless zigzagging equity markets, volatile commodity markets, and a difficult bond market" have contributed to poor performance this year.

The Newedge Trend index is down -2% this year as of end of May. The Newedge Trend Index is comprised of the largest 10 trend following managers based on assets under management.

So finding a managed futures strategy that produces robust risk-adjusted returns in this present environment is proving to be relatively challenging. Managed futures are not necessarily on a down-trend but investor expectations seem to be misguided. The principle role of managed futures funds, one could argue, is diversification rather than equity outperformance. But should they not also be capable of generating positive return in the current environment?

There is much data showing that the addition of CTAs to a diversified portfolio improves diversification as they tend to be uncorrelated to wider markets. Indeed, a portfolio without managed futures could be viewed like driving a car without insurance. But as in any type of insurance there are some you should buy and others you should not. So to extend the analogy; investing in managed futures funds with negative returns is like buying the wrong insurance policy.

Frank Seidel of Amandea Asset Management AG says that "virtually all systematic trend followers are stuck in a corrective phase, although the lows should be overcome in the meantime."

But these views look highly biased given that the data shows that the biggest guys are the ones that have been mostly down. Academic findings show that excessive assets under management have a negative influence on performance.

However it seems that investors are still pilling money into a handful of managers. And it appears that these managers are failing to deliver returns even when trends are predominantly noticeable. This is a problem of benchmarking. Investors are afraid to deviate from the benchmark and take decisions. But the opportunity is there.

Oliver Prock CIO of Salus Alpha says: Being up around 17% YTD, for us the year is excellent. We do not share the widespread complaints about the recent environment since there were huge positive trends in commodities and bonds while equities were stable so far this year. But maybe we are doing simply better than others since our model is adaptive and can switch between long term and short term and trend following and contrarian.

Capital weighted benchmarks or benchmark indices that equal weight the biggest managed futures funds in the industry seem to be a victim of their own success. The biggest managed futures models are deteriorating now due to the mere fact that they need to allocate huge capital. Smaller funds that tried to mimic the successful models of the big funds are also affected.

The investor challenge is obvious, but the solution may too be obvious: Picking smaller proven managed futures funds with proven ability to perform in all market environments might reward investors handsomely who deviate from the benchmark.

News @ InvestmentEurope.net

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NEWS - 30

Salus Alpha managed futures strat surges to 17% YTD

By Matt Smith

June 2nd, 2014

Salus Alpha has defied the struggles of the trend-following sector to return nearly 17% in its managed futures strategy over the first five months of the year, latest returns show.

The Salus Alpha Directional Markets strategy, which manages roughly $240m, hit a third consecutive month of gains in May, up 2.54%, to bring its YTD advance to 16.8%.

It comes as average YTD returns for the largest CTA managers climb into the black for the first time this year, according to Newedge’s benchmark index. However the largest trend-followers remain, on average, in the red.

Liechtenstein based Salus Alpha Capital, a pioneer in developing Ucits hedge funds, believes that while the principle role of managed futures strategies is diversification rather than equity outperformance, they should be capable of generating positive return in the current environment.

Low interest rates, the risk on/risk off environment, trendless zigzagging equity markets, volatile commodities and a difficult bond market, have been variously cited as reasons for lacklustre managed futures returns this year.

CIO Oliver Prock said: “I cannot share in widespread complaints about the recent environment since trends that you can identify and profit from are clearly there.

“Our approach is very different to most CTA’s and is designed not only to provide huge insurance payoffs in times of stress but also enables us to make positive returns in market environments that seem to be tough for our peers.

“Our ability to generate returns in seemingly tough market conditions is like taking out car insurance but having your premium more than just repaid when you don’t make a claim.”

Salus’ Directional Markets Strategy is fully systematic and adaptive to market environments, switching between trend-following and contrarian approaches and short and long term time frames across 100 futures markets worldwide.

The strategy is offered on Deutsche Bank’s dbSelect platform or as an Ucits fund gaining exposure to eligible components of the Vienna Stock Exchange listed DMX – Directional Markets Index.

News @ HFM Week
News @ CTA Intelligence

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NEWS - 29

Salus Alpha Diversified CTA "Directional Markets" continues to outperform the market. Performance is Ranked #1 in 2014 ytd by db Select Managed Account Platform.

(Vienna / Mauren, 2014-04-15) The Salus Alpha diversified CTA strategy "Directional Markets" (DMXUSD) has delivered an outstanding start to 2014 in terms of performance, according to the db select Manager Performance Flash Report – March 2014, produced by leading Deutsche Bank independent Managed Investment Platform db Select. The strategy delivered +4.12% in March 2014 which led to the result of being Ranked 1st YTD 2014 and Ranked 3rd Trailing 12 Month return of established managers on DB Select Platform and therefore yet again outperforming the world's biggest CTA managers. The significantly below average trailing 12 Month Volatility of 11.47% provides clear evidence that Directional Markets' risk management is dealing with the current environment and is producing very strong risk-adjusted as well as absolute returns to investors. Regarding current market conditions we expect the strong performance to continue since at the time of writing YTD performance reached already 12% by Mid April. We remain highly uncorrelated to other CTAs, which means a an improvement in returns and risk ratios for e.g multi manager portfolio. Mr. Prock, CEO and CIO of Salus Alpha Capital said:   "Investors have asked whether we have changed anything but what we have done is think about when we run our model and when we execute our trades. We have not changed the model at all. The model has consistently performed every year since inception in 2003. Effectively, we have merely put on the traction control so that we can apply the power of our engine to the track" CTA & Global Macro Manager Name 2014 YTD Return Trailing 12 Month Return Trailing 12 Month Sharpe Ratio Salus Alpha Directional Markets Strategy (DMXUSD) 7.30% 5.46% 0.48 NuWave Combined Futures Portfolio 2x -2.69% -4.47% -0.43 Winton -0.40% 4.74% 0.55 Brevan Howard Systematic Trading Program * -6.32% -5.63% -0.61 Aspect Diversified Programme -5.02% -8.64% -0.74 Lynx -5.02% 1.37% 0.08 Table 1 – Performance comparison (dbSelect Manager Performance Flash Report - March 2014) About Salus Alpha Salus Alpha Capital is a sophisticated Investment Manager and has established itself as a top expert in Alpha and Smart Beta Asset Management over the past decade. Our extensive Know-How in the space is characteristic of our company and our employees. The client base of Salus Alpha consists of institutional clients in Europe, Asia and in the USA. Salus Alpha operates from a network of global offices including Switzerland, Liechtenstein, Austria, the Netherlands, Singapore, India, and Hong Kong. We offer tailored solutions for clients and their financial needs, such as white label funds, managed accounts and structured products. For more information on Salus Alpha Capital, please visit http://sac.salusalpha.com  For inquiries please contact either Andrea Moritz or speak to your individual contact within the firm Andrea Moritz Public.relations@salusalpha.com +43 1 9572587 43 Link 1

NEWS - 27

Salus Alpha’s Strategies deliver strong start to 2014

(Vienna / Mauren, 2014-02-19) Salus Alpha’s strategies have delivered a good start to 2014 in terms of performance, according to the DB select Manager Performance Flash Report – January 2014, produced by leading independent Managed Investment Platform db Select.

The strategies delivered positive returns during the month of January, led by the Salus Alpha Directional Markets Strategy (DMXUSD) (Ranked 3rd out of 69 listed CTA programmes on DB Select Platform) which was up +5.75% and outperforming the world biggest CTA power houses by a positive margin of 6.5% on average during the month. Further, the Salus Alpha Global Alpha Strategy (GAXUSD) (Ranked 8th out of 69 listed CTA programmes on DB Select Platform) was up by +2.08% in January. Both programmes enjoyed also positive performance in 2013 contrary to most CTAs. Our programmes were able to take advantage of volatility which is back in the markets due to volatile fundamental data led by weak US jobs and discouraging PMI numbers from China. Market sentiment weakened further towards the end of the month, as the Federal Reserve announced another round of tapering which raised concerns regarding the health of the global recovery.

Mr. Prock, CEO and CIO of Salus Alpha Capital said:

“Our strategies seem to repeat the January stint in February and in the coming months because our approach is unique and able to generate positive returns in all environments, since it is adaptive to changing market environments and can switch between short to long term as well as trend following and contrarian. Therefore we are not dependent on trend as a sole source of alpha”.

CTA & Global Macro Manager Name	Jan-14 Month Return	Trailing 12 Month Volatility	Trailing 12 Month Sharpe Ratio
Salus Alpha Directional Markets Strategy (DMXUSD)	5.75%	11.07%	0.31
Salus Alpha Global Alpha Strategy (GAXUSD)	2.08%	10.82%	0.41
NuWave Combined Futures Portfolio 2x	-2.25%	9.87%	-0.57
Winton	-2.40%	8.65%	0.54
Brevan Howard Systematic Trading Program *	-4.81%	9.57%	-0.51
Aspect Diversified Programme	-5.52%	12.19%	-0.88
Lynx	-5.89%	16.55%	0.07
Chesapeake Diversified Program	-7.60%	20.93%	0.67

Table 1 – Performance comparison (dbSelect Manager Performance Flash Report - January 2014)

About Salus Alpha

Salus Alpha Capital is a sophisticated Investment Manager and has established itself as a top expert in Alpha and Smart Beta Asset Management over the past decade. Our extensive Know-How in the space is characteristic of our company and our employees. The client base of Salus Alpha consists of institutional clients in Europe, Asia and in the USA. Salus Alpha operates from a network of global offices including Switzerland, Liechtenstein, Austria, the Netherlands, Singapore, India, and Hong Kong. We offer tailored solutions for clients and their financial needs, such as white label funds, managed accounts and structured products. For more information on Salus Alpha Capital, please visit http://sac.salusalpha.com/

For inquiries please contact

Andrea Moritz

Public.relations@salusalpha.com

+43 1 9572587 43

Link 1Link 2

INTERVIEW - 2

CTA review: Salus Alpha

17/01/2012

Stockholm (HedgeFonder.nu) - We asked the players in the CTA / Managed futures world to give us their views on the 2011 in general terms for CTA / Managed Futures industry in general and their own trading strategies in particular. Editorial on HedgeFonder.nu formulated consciously call in rather vague and unspecific terms for providing such a diverse picture of the industry as possible. We also asked them to make an outlook for 2012 and the future of the CTA, which we realize is difficult for systematic traders. The contributions we receive will be published unedited and uncommented.

Markus Rudling, Managing Director – Salus Alpha Financial Services Nordic (Bild):

Goodbye 2011!

Most strategists and analysts were unanimous in early 2011 for that year looked promising and that the stock market, like 2010, would deliver solid gains and that we would get an increase of around 20%. 2011 was, however, in history as a very turbulent and eventful year. After a few stable months after the end of the world came to be dominated by the earthquake in Japan in March that made ​​the markets react with volatility to soar. Fukushima was only related to late summer and autumn's big show where the global debt problem really got into everyone's focus. Greece was close to a complete collapse, several European countries were not far behind and the U.S. had its credit rating cut for the first time in history, although the problems even towering up in the Chinese sky. In addition, rising parts of the Arab world in a popular uprising against the outdated structures with a hard past and undemocratic leaders. In such a deep and widespread crisis came to the market's gaze is directed towards that part of the world where the situation was most acute - Europe! The euro and the EU was the first time since collaborated started in a significant political and financial crisis of confidence which Europe increasingly emerged as a house of cards at any moment might fall apart. The market is analyzed every word that was said or not said by European politicians and the major central banks. Every day the market was thrown between hope and despair with huge price swings in all asset classes as a result. The concept of volatility given a new meaning. In the autumn went equity, commodity markets and the euro in a major fall when institutional investors sold risk in favor of "safe haven" in the form of U.S. and German government securities and precious metals, gold in the lead, all of which showed record levels. Like the financial crisis of 2008 was sold government securities on several occasions to a negative rate. Investors borrowed hence the money for a guaranteed loss in exchange for getting rid of both counterparty risk strategy risk. A signal that is perhaps more clearly than anyone that the financial system is in substantial sway.

When summarizing 2011 based on the strategy Managed Futures, you should conclude that the systematic trend following managers generally had the tricky, with the fact that volatility was driven by the macro data and political maneuvering, generating large and erratic price movements down to a daily basis with no clear trends. Buy and sell signals that the models created were anything but reliable when fundamentals were missing altogether. The few trends that strategy succeeded in capturing found primarily in fixed income markets and to some extent even among precious metals even if the price of gold at the end of the year fell into the same track equity indices, currencies and other commodities with high volatility and one-strike prices. The insurance against the sharply falling share prices as the strategy showed up in the record year 2008 were conspicuous by their absence this year. But despite the lack of positive returns from Managed Futures as a whole it was nevertheless one of the strategies that performed best in a market that was anything but simple. Only pure arbitrage and market neutral strategies were able to manage the volatility of the market and ultimately generated the low returns for investors that otherwise saw their portfolios drop in value across the board.

Hello 2012!

Studies show that after each decline in Managed Futures given investors the opportunity to go into low and beneficial levels when downturns have historically been followed by a sharp rise and also the recovery period is relatively short compared to other strategies.

It was also the trustee RPM Risk and Portfolio Management mentioned earlier in this commentary series, ie., the Managed Futures historical are "mean reverting" about his own positive mean value with a distinct "Upward bias." An average of risk-adjusted is very advantageous compared to other asset classes and hedge fund strategies and also completely uncorrelated to equity and bond markets over time.

Another important point is that the Managed Futures strategy, which is virtually impossible to time. With this insight should be the strategy should always be considered in an overall portfolio. Managed Futures ability to take advantage of trends and cycles in all asset classes and sectors is unique and the strategy becomes increasingly important as the world becomes smaller by the day, financial markets are increasingly interconnected and assemblies in the equity markets, with a more frequent interval. The time when the shares over time was a superior location and the concept of diversification was to put in 10 to 15 shares and not in one or two shares are definitely over.

Our own CTA, Salus Alpha Directional Markets, went on the first negative year ever since its inception in March 2003. The Fund is based on a pure statistical model that predicts future price levels of close to 100 underlying futures contract. Thanks to the daily forecasts and their evaluation based on the direction and quality, the model is highly adaptive and can switch between different time horizons and strategies, that is, between short-and long-term and intermediate trend and "contrarian". Salus Alpha Directional Markets since its inception in March 2003 generated a total return of 346% with an annual average annual return of 17.3% at a volatility of 14% and a rolling beta and alpha on an annual basis to OMX Stockholm 30 at -0.08 and 16.52%.

The baseline risk of Salus Alpha Directional Markets can be found at Deutsche Bank's Managed Account Platform and thus can be accessed with full transparency and daily valuation by products such as Unfunded Total Return Swaps, Managed Accounts, UCITS III funds and structured products. The platform is called the risk "DMX - Directional Markets Index," which is a publicly listed investment index offense (a portfolio) with daily valuation that is actively managed by Salus Alpha Capital.

Despite the events in the market in 2011, analysis of historical data to Managed Futures continues to act as insurance against sharp fall in stock markets: after a decline of 3% or more of the Managed Futures is the average rise in strategy 7.7%. If equity markets continue to fall during the recovery period, we see that the average excess return in relation to shares in relation to amount to 15.8%.

What will happen in 2012, or the year ends, we can not predict. But it is clear that the problems that the world experienced in 2011 have not been resolved and that a potential solution will take time, resources and relationships of claim. The question most people ask is: Who will pay, what it will cost and what does the result look like? It is notable that Sweden perhaps for the first time in modern history is in a situation of economic and political stability that makes most of our European neighbors will be green with envy. In today's global world, with the financial markets are now fully interconnected, did it not, however, Swedish investors when they saw the Stockholm Stock Exchange (OMX Stockholm 30) in a year low of -26.7% as of September 23. October, however, offered a hefty recoil of almost 11.5% which was the Stockholm Stock Exchange to park at -16.1% at year end.