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Bloxham fund is eight years in the making

Irish equity specialist Bloxham has created a global absolute return fund that identifies potential long and short positions using technology developed over eight years.

The firm’s Midas global absolute return fund aims for a return of at least 8 to 10 per cent a year with a third of the volatility of the S&P 500 index, which represents equity markets in general. Midas is a quant system that identifies overbought and oversold stocks with a global universe of over 2,000 stocks,  along with emerging trends that occur when a stock breaks out of its usual trading range.

Midas is an improved version of an older quant system developed in 2003, which unable to detect the movement in stock prices from oscillation to trend. Oscillation is the term Bloxham uses to describe the period when stocks move within a trading range close to fair value. Trend refers to changes in the factors affecting a stock price resulting in an upward or downward trend that leads to a new fair value price.

Bloxham believes a ‘black box’ approach, where funds are driven by computer models with little or no human intervention, does not work. It has four fund managers interpreting the data produced by Midas to create the portfolio with an awareness of the global economy. The fund will also have high cash weightings of 30 to 100 per cent, depending on market conditions. Bloxham says this will reduce volatility, as it believes 100 per cent participation in equity markets can be dangerous during periods where liquidity is scarce.

Bloxham’s equity holdings will comprise 25 to 40 stocks,which will be assessed in terms of risk and reward. Stop losses will be used to automatically sell positions that are working against the portfolio once the stock price gets to a certain level.

Bloxham believes its combination of technology and high cash weightings gives it the edge over other absolute return funds that have underperformed. However, it may take time for Bloxham to win over some advisers, as its use of a sophisticated technical analysis through Midas could be difficult to explain to clients.

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