M.S. Capital Management

Limited (Gl. Diversified)

Fund Investment Objectives

The MS trading method is trend following. The time-frame is medium to very long term. The method runs using a computerized trading system. The system runs once per day and has two components: The Signal Generator, which calculates the buy and sell price levels and; the Sizing Manager, which calculates the size of new positions and modulates the size of existing positions. The Signal Generator calculates entry and initial exit prices for prospective new positions, and trailing exit prices for existing open positions. The sizing manager sizes new positions by calculating single contract risk as a dollar amount. It divides this into the allowable dollar risk for this contract - which is a function of both the contract's risk weighting and the risk-adjusted account equity - to return the number of contracts to enter. MS research shows that diversifying across markets is an effective method of reducing the inherent volatility in returns. Consequently MS assembles its portfolio with the primary aim of achieving as much diversification as possible. MS groups the available markets into 8 sectors: Currencies, Interest Rates, Metals, Energies, Grains, Soft Commodities, Meats, Stock Indexes. MS allocates risk as evenly as possible among the sectors, while making adjustments for any correlations between sectors. It then allocates each sector risk across the individual markets, again allowing for correlations. MS understands that market correlations are not always stable; in fact they can vary significantly. Consequently, the portfolio assembly process becomes a trade-off between science, and common sense.