At Ten Talents Capital we have four primary objectives: to provide a superior long term absolute return, to outperform the ASX 200 over rolling 12 month periods, to preserve investor capital, and to limit downside risk through stop loss techniques.
To achieve these objectives, we use quantitative (rule-based) strategies that have been tested on historical data. We use little discretion or ad-hoc decision making in following these strategies, believing that long term success depends on a disciplined and rigorously scientific approach.
We believe that we, the Directors, must have our own “skin in the game”. We have therefore used our own capital to establish Ten Talents Capital, and our own money is invested in the Fund, ensuring that our incentives are aligned with those of our clients. In this way, we hope to build a Fund that will last a lifetime, creating life-long investment partnerships with our clients.
The Fund invests primarily in small cap stocks on the Australian and US exchanges. The core investment strategy seeks to exploit premia from three well known factors: small size, earnings quality, and time-series momentum. The duration of these investments can vary widely from just a few weeks in some cases to years in situations where a stock remains within the relevant parameters.
The Fund also sells options to exploit the variance risk premium that exists in equity index options. This is done through systematic selling of option spreads in index and etf options.
We believe that the risk of short term losses are an integral part of any investing process and can never be eliminated, only managed. As such, risk control is vital to our investment approach and is achieved in several ways:
• Maximum Weights – the Fund does not carry concentrated positions in individual stocks (ie. position sizes are limited to predefined limits as a percentage of the total investment portfolio)
• Maximum Trade Risk – losing trades are liquidated when losses equal a predefined percentage of the total portfolio
• Market Filters – trades may only be initiated if conditions on stock and volatility indices are appropriate
• Market Diversification – positions are diversified across sectors on both Australian and US exchanges
• System Diversification – the Fund employs strategies that generate profits from different phenomena
Readers who would like to know more about the Fund’s philosophy may wish to consult some of the following academic sources:
Clifford S Asness, Tobias J. Moskowitz: Value and Momentum Everywhere
Eugene F. Fama, Kenneth R. French: Size, value, and momentum in international stock returns
Narasimhan Jegadeesh, Sheridan Titman: Profitability of momentum strategies: An evaluation of alternative explanations
Coval, Shumway: Expected Option Returns
Carr, Wu: Variance Risk Premia
Bondarenko: Why are Put Options So Expensive?