© 2016 by Logica

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customization and consulting

In addition to our current products, Logica offers customized approaches: we can create tailored portfolios with variants of our existing components to desired risk/reward characteristics, or consult with clients on construction improvements on their existing portfolios.

Customization

Logica offers the following individual components, with the stated goals and intents. We offer off the shelf combinations of these components, but also understand that these can’t fill all needs.

For example, if someone is attempting to offset pure, broad, long-only market exposure risk, perhaps they would not desire to have a volatility arbitrage strategy that includes call options (in addition to put options).

Another might find our DMN strategy to be more effective in hedging out their factor sensitivity than is a broad market hedge (or might combine them both). Etc…

Customization Example 1:

Below is an example of a typical combination: a long-only equities strategy combined with S&P 500 put option trading (DTP) and our Defensive Market Neutral (DMN) strategy. The option trading seeks to hedge against down moves in the broader market, while the DMN strategy aims to take advantage of downturns in specific market factors, such as trend/growth factors.

For example, according to our research, when a typical long-only strategy that is biased toward the momentum factor (as many are) experiences a daily return of -1.00% or worse, about 8% of those times, broad market indices do not experience a concurrent drawdown. Put simply, strategies that are biased toward specific factors can experience sharp drawdowns even when broad market indices do not. Thus, broad market hedges do not always work.

Customization Example 2:

Below is an example of a typical combination: a mean reversion, sector trading strategy combined with S&P 500 put option trading and our Safe Haven Assets, or Ex-factor strategy (EXX). The option strategy seeks to hedge against large downward moves in the broader market, while the EXX strategy aims to take advantage of broader economic turmoil and geopolitical risk, while maintaining a small, positive return the rest of the time.

Consulting

The traditional focus of money managers is stock selection and the associated idiosyncratic alpha, both of which contain the known risk of overcrowding, and its consequence, signal decay with time.

To improve the probabilities of stable alpha production, Logica applied a wider lens in search of a different edge. We landed on the focus to allocation alpha and the often ignored “portfolio construction alpha,” which cannot overcrowd, and is therefore not subject to decay. It is our belief that the widespread lack of attention to portfolio construction has resulted in an industry overloaded with heavy left tail/negative skew distributions.

Over the years, we have created and applied what we now call our Tactical Exposure Risk Allocation model, or TERA. TERA is philosophically and quantitatively rigorous, while understanding that every situation, and portfolio, is different, and historical returns cannot be blindly fed into a machine with the expectation of a one size fits all solution. TERA utilizes proprietary modeling to infuse balancing and timing components into existing portfolios, and in doing so, has demonstrated additional alpha over existing strategies and other portfolio construction methodologies.