Jason Mann is all about momentum. At EdgeHill Partners, Jason runs the flagship EHP Advantage Fund. That fund has delivered a 23% compound annual return since its inception. How does Jason deliver such high returns? He employs a quant-based, rules-driven system for stock selection. Additionally, he follows a strictly balanced long/short policy, and maintains 400 to 500 highly liquid positions in the fund at any given time. Through the EHP Advantage Fund, Jason buys undervalued, rising, stable stocks and shorts overvalued, declining, volatile stocks. He actively gears down risk in declining markets and rotates toward more defensive stocks and strategies to preserve capital. Impressively, Jason geared down before the oil crash impacted Canadian markets. In the EHP Advantage Fund’s fact sheet, there’s a chart that shows a clear divergence starting in August 2014 between the fund and the TSX, whereby the former rose while the latter plunged.
Jason’s idea of “gearing down” means taking very specific steps: reducing net exposure, rotating to more defensive strategies, and reducing beta to zero. This gear-down concept demonstrates that while Jason is full speed ahead in rising and stable markets, he knows when, how, and where to take a detour when there’s a crash up ahead. Jason says, “We aim to participate in bull markets and sit out of bear markets.” All investors should understand and implement risk management in their trading or investing practice, since protecting capital is just as important, or some might argue more important, than growing capital in the market.
In addition to the core long/short investment strategy employed at EdgeHill Partners, Jason also shared with me the other strategies he used while he was a managing director, co-head of the Absolute Return/Arbitrage Group at Scotia Capital. The Absolute Return Group is responsible for developing and delivering cross-platform alpha-generating ideas for the hedge fund community.
Algorithm: algorithmic trading or “algos” is used by larger institutions to decide the pricing, timing, and quantity of stock orders.
Beta: measures volatility and correlation of a stock, in comparison to the stock market.
Bought Deal: financing in which investment bank(s) commit to buy a new equity offering from the company, at a designated price, on a set date.
Drawdown: a loss incurred by an investment between its high and low over a given period of time.
Liquidity: how easily an investment can be converted to cash, at or around market prices.
Quantitative or Rules-Driven: employing algorithms to capture gains in the market, as in quant-based trading or investing strategies.
Vix: ticker symbol for the CBOE Volatility Index, which is the measure of the volatility of SAP 500 index options. Can also be referred to as the “fear index.”