The Kessler Cornerstone Absolute Return strategy is designed to take directional positions in exchange traded US sovereign interest rate futures across the yield curve. It aims to profit by capturing primary and secondary trends of interest rate movements, as well as implied carry; either on the long or short side of the market. The strategy takes positions based on the investment managers systematically-translated understanding of how macro and technical indicators predict movements in interest rates; both from an empirical and logical perspective.
More specifically, each trading day, systematic models are run independently for key positions on the yield curve taking account of several economic and market factors. The models generate outputs which determine the overall market exposure taken which is expressed in percentages of exposure ranging between +100% (fully long) to -100% (fully short). Full exposure is dictated as the more conservative of two conditions; either +/-16 units of portfolio duration (similar to the interest rate sensitivity of a 30 Year US Treasury Bond), or a 12% maximum loss over a 1 month time-frame (parametric VaR, 99%). Manager discretion is then used to choose an allocation between the yield curve points.
The exposure call, maximum exposure, and yield curve allocation are combined and translated into a particular amount of contracts for each account which is sized according to the most current equity (actual or nominal). Aside from the inception of an account and the necessary rolling of contracts each quarter, trading serves only to adjust exposure from yesterday's call to todays. From August 2010 forward returns are taking from the Cornerstone Absolute Return Fund Ltd. which trades the same strategy. AUM reflects strategy assets.
Note: Portfolio duration describes the aggregate interest rate exposure in the portfolio. Being long 16 units of portfolio duration means that a 1% yield movement lower in the underlying positions would result in a 16% gain. Likewise, a 1% yield movement higher would result in a 16% loss. 8 units of portfolio duration would move the portfolio +/-8% with a 1% yield movement, etc.
From August 2010 forward returns are taking from the Cornerstone Absolute Return Fund Ltd. which trades the same strategy. AUM reflects strategy assets.