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Fund & Strategy FAQ

General

What assets does the Fund invest in?

The Fund primarily invests in XAUUSD spot.

XAUUSD is a Gold-based currency pair and is the second most liquid pair in the currency market.

The value of XAUUSD is determined by the price of Gold relative to the US Dollar.

Is the Fund reliant on the asset price to be moving up to generate returns?

No. Unlike equities or property, the Areus Alpha Gold Fund portfolio does not rely on asset price appreciation. Instead, it looks to generate returns from natural price action volatility, regardless of the general direction of the underlying asset price.

Who is the Areus Alpha Gold Fund open to?

Australian -Wholesale Investors under S.708 of the Corporations Act 2001.

UK & New Zealand -Wholesale/ Sophisticated Investors.

US – Accredited Investors as defined in Rule 501 of Regulation D under the US Securities Act.

What is the minimum initial investment amount?

$50,000 AUD/ NZD – For Australian/ New Zealand investors.

$50,000 USD – For investors outside of Australia & New Zealand.

What fees are charged to investors by Areus Asset Management?

1.99% management fee. (Please review IM for complete details).

Can you briefly describe the investment strategy?

The Areus Alpha Gold Fund is designed to be a technical, long-short, multi-strategy absolute returns portfolio focusing on the Spot Gold/ USD currency pair.

The portfolio’s returns come from realized trading gains in liquid spot gold transactions via price action algorithmic trading strategies.

With high trading volume and tight spreads Spot Gold is an evergreen asset with high liquidity.

The trading portfolio is constructed with multiple diverse trading strategies (1. Trend following 2. Breakout 3. Mean Reversion) to trade the spot gold instrument in order to exploit various market opportunities and inefficiencies and to diversify the portfolio’s exposure to regulate overall capital drawdown.

It employs algorithms to minimize human failings and provides a systemic & risk disciplined approach in trade execution, optimized speed and scale for the portfolio.

*Alpha Gold aims to deliver high risk-adjusted returns that are uncorrelated to traditional asset classes.

Detailed Strategy FAQ:

Idea Generation

Research

Provide an In-depth description of the research process and methodology for each driver. What are the key factors considered in conducting research? Why are the factors important? What do they drive?

Technical strategies are divided into two main categories (trend and range) and within each a few main themes, namely overbought and oversold (where XAUUSD is deemed overbought or oversold and the other currency is also deemed to be overbought or oversold) where they will be reverting to mean, levels (mainly Fibonacci and Support and Resistance), scalping (where momentum based on proprietary inputs/indicators and flow information gives high accuracy levels to scalp at), pattern recognition (mainly identifying Monday/Friday patterns, Asia opening/New York close patterns etc, deriving a certain pattern recognition to decide on a certain entry principle). For the Alpha Gold strategies, fundamentally they are built upon mean reversion theories. Looking for consistency based on market experience and via crunching past price data and price behaviour. Strategies have been developed that have consistently performed with reasonable drawdown, while giving reasonable returns over normal and abnormal periods. Strategies that perform well in normal market conditions but fail during abnormal markets are dropped. Drawdowns are looked at because this single factor may erode all returns and even impact capital if not well managed. Returns can only be achieved if drawdowns are kept  in check.

How is the investment strategy the same or different compared to others with a similar approach?

Focus on alpha and risk management; Drawdown of overall portfolio is managed within 30% for risk setting of up to 1.0x and within 15% for risk setting of 0.4x. Portfolio is built upon several trading drivers to 1) diversify the profit and risk factors, 2) reduce reliance on any one of a certain category and theme of trading, 3) ensures scalability as it will not be constrained by any single trading setup’s capacity.

Is the process repeatable and scalable?

Yes, the strategy is repeatable and scalable.

Portfolio Construction

How is the investment strategy for each model translated into a model?

Algorithms are mostly executed on MetaTrader 4 platform, using the Expert Advisors programs in the terminal that have been developed in MetaQuotes Language 4.

Is there a price target for each position, and what happens if the target is not reached?

Price targets are dependent upon Momentum. If momentum is deemed to have faltered, the algorithm will exit the positions. 

What is the investment horizon for each position?

From intraday (80-90% of trades) to 2-3 months average hold.

Portfolio Management

What factors influence portfolio shifts?

Dynamic weighting is employed across the profit drivers in the portfolio. From time to time, strategies may be switched out and replaced with a similar category and theme and thus shifts in overall portfolio construct are minimal. Rebalancing is done weekly.

How is the model expected to perform during different market conditions?

2022 was a highly volatile with rate hikes, energy crisis and the ongoing Ukraine/Russia war, the live performance of the trading has shown little correlation to the aforementioned events.

In what circumstances will the trading frequency increase/decrease/halt?

Algos will be paused in entering new trades for any foreseeable potential illiquidity event such as US Election, Brexit, Japan holiday etc. In other cases, there is no artificial increase or decrease the trading frequency and such will be dependent on market conditions.

What is the policy regarding increasing/decreasing discretionary positions during upswings and drawdowns?

Typically, trades are entered by algo and exits are determined by TP/SL (Take Profit/ Stop Loss) targets. Discretion may be used to choose to close out positions, despite positions having not met the exit conditions as there might be an upcoming event that may affect the viability of those positions. In general, as far as possible, non-invention works best.

How frequently are changes made to the models/ trading system used by all drivers?

Strategy review and comments happen on a weekly basis with the R & D team. The components in the strategy are constantly being refined and tested, and once the testing is satisfactory the modifications will be pushed ‘live’ onto the master portfolio. Typically, the portfolio is reviewed and (if required) further optimised every 3-4 months.

Execution

How are positions traded?

Trades are identified and executed by algorithms.

  1. Trading opportunities – Identified by the algorithms through a series of calculations and trend knowledge.
  2. Trades execution – when the prices are favourable, the algorithms will execute the trade, opening a position with a fixed SL (according to the risk controls) and TP.
  3. Trade closing – when the algorithm detects that the momentum is slowing down, or that the trades have hit the SL/TP, the algorithm will trigger a close of the trade. During the trade execution process, there is full overriding control to switch off the algorithms from being able to execute the trade should it be deemed necessary.

Is the macro environment considered?

Significant events such as major central bank announcements or elections that could potentially affect Gold (XAUUSD) are considered. Account liquidity concerns are also taken into account. If the liquidity providers deem the market to have insufficient liquidity due to certain situations, trading will be disabled where the pairs are affected.

What is the trading frequency for each driver?

Algorithms are always running, and trades are automatically entered should the pre-programmed parameters are met. The entering of trades depends on market movements, and on average have seen 0-30 trades a day.

Does the trading system for each driver ever add to or reduce winning/ losing positions? If so, is there a maximum/reduction level for a winning/ losing position?

Yes, for some. The system will add positions to average out in losing scenarios or positions are added to add on to winning scenarios. For e.g., in a winning scenario, the system adds while momentum is strong and when momentum falters, all the trades are taken out, and at any point in time, the system maintains a pseudo trailing stop to protect open profits. For losing scenarios, it adds positions only at levels deemed to be a strong reversal level, always maintaining the risk management principles. In any case, the strategies that do have adding of positions involved always start out with very small sizes.

How is the maximum level of addition/reduction for winning/ losing positions determined?

For losing scenarios, positions are added only at levels deemed to be a strong reversal level, always maintaining risk management principles. In any case, the strategies that do have adding of positions involved always start out with very small sizes.

What limits are applied to trading parameters? (average ticket size, max ticket size, max exposure, max leverage, typical trade frequency)

The leverage ratio used is up to 1:100, i.e. the strategy can hold XAUUSD positions of a value of up to 100 times of its invested capital. The right is reserved to modify the margin requirements as required.

Risk Management

Please outline the approach to Risk Management.

Drawdown is limited for the overall portfolio within 30% for risk setting of up to 1.0x and within 15% for risk setting of 0.4x. Please note that the right is reserved to adjust any parameters or limits to manage the risk in times of extraordinary market conditions.

What measures are taken to adhere to the risk management during different market conditions?

TP/SL limits are programmed per trade and SL limits are built at driver and portfolio level.

Are there any cases where human intervention is required? Why, when and how?

Yes, when there are potential illiquidity events. When reduced market liquidity is foreseen, the strategy will stay out of the market. There is constant monitoring of the algos and if it is realized that the algos are not entering trades as it intended to be, usually due to a change in market dynamics, the driver will be removed from the portfolio.

How is event risk managed?

To manage event risks like major central bank announcements, economic data release or news events, the markets and open positions are monitored very closely. Depending on market sentiments and the assessment of the price volatility, a decision may be made to sit out of events and will not activate the algos to avoid getting whiplashed by markets. And if necessary, might make a discretionary exit of open trades.

Return Generation

When did the biggest drawdown happen and was it macro or micro driven?

Largest live (intra-month) DD of ~20% (at 1.0 risk setting) since going live in March 2022;

  •  July 2022 FOMC meeting which caused USD to weaken instead of strengthening and the portfolio had open short positions in XAUUSD
  • Sep 2022 due to USD bullish strength

What actions were taken during the drawdown and what measures are built in post drawdown?

The portfolio drawdown did not exceed limits and no intervention was required. Drawdowns are part and parcel of trading. Due to the nature of gold, the strategy relies on the fact that prices will revert back to the mean so as long as the DD is within the expected range there will be no intervention.

What are the characteristics of the returns versus volatility?

When volatility increases, it goes both ways – either returns increase markedly where positions are in the portfolios favour or drawdown increases temporarily if the positions are not in favour. And in such situations where drawdown is expected, the bounce back usually ends up with satisfactory positive returns.

Are entry and exit signals for all drivers generated by the same model/trading system?

No. Each category and each theme within each category has their own entry and exit rules.

Other

What are 3-key considered standout/ differentiating factors that sets the strategy apart from other gold strategies?

A high performing gold strategy that has shown outperformance amidst one of the most turbulent periods in recent history. Loss avoidance focus with active risk monitoring. Sustainability and scalability – the trading flow has been negotiated with and accepted by several institutional liquidity providers, which allows for scaling up in volume with no major capacity and liquidity concern. Strong relationships with liquidity providers. Many algos are not sustainable and scalable in the long-run.