Tracking Twitter feeds and other social media posts to gauge how investing sentiment is changing from one moment to the next has paid off handsomely for the Goldsky Global Alpha Fund.
The long/short equity strategy run by Kenneth Grace, the chief investment officer at Goldsky Asset Management, selects stocks to trade based on how investing sentiment swings around them.
It has clocked up a healthy 13.87% gain in the first seven months of the year, on top of impressive returns of 23.76% in 2016 and 14.67% in 2015. The fund at the end of July was managing at least $105 million in capital, less than three years since its launch in February 2015.
Even more remarkable is the low 0.98% maximum drawdown suffered by the strategy since launch. “Our focus on behavioural science and applying that to investing has given us an edge over other global equity strategies,” said Grace, who over the years has done extensive research on behavioural economics and finance, focused on the psychology of decision-making in investing.
Besides finishing his commerce degree at Monash University, Grace later returned to university for further study in science with a focus on pure mathematics. Grace said his studies on fractals and chaos theory had led to a greater understanding of the dynamics of markets, and influenced the development of the systems now in use at Goldsky with the concepts of feedback phenomena and behavioural science now forming a significant part of the strategy itself. Prior to Goldsky, Grace traded for more than a decade on his own account, investing in various assets including property.
The Goldsky portfolio is typically made up of approximately 50 to 100 listed securities sifted from a universe of global stocks across a range of sectors, and usually, runs only a small exposure in cash.
“Our team begins by looking at individual equity or sectors that move in a specific way and that which we understand. We just don’t pick stocks haphazardly, but look instead at how each individual equity moves. If it moves into the tier that we expect them to move, then we invest using trends in public investing sentiment as the final screen. We make a lot of instantaneous decisions and quickly trade in and out of our positions.”
Grace, the sole trader in a Sydney-based seven-man team composed of quants, manually executes all trades that the quant team suggests. The fund is most suitable for investors seeking long-term capital growth, but with a lower risk profile than the broader global equity market index, said Grace. It uses derivatives in the form of forward contracts to manage foreign currency exposure.
With the strong gain, the Goldsky team is on a roll and recently hired two PhDs from Queensland University to bring the team to seven – six of which are quants actively tapping into AI and machine learning to take advantage of Big Data.
Grace said the short-term goal is to raise assets under management to $200 million and immediately hard-close once the size is reached. The fund is also sold and distributed in the US, that has raised the cost of compliance, and Grace is determined to see it scale to around $200 million to cover the increased cost.
“We don’t intend to become much bigger, and if we reach that size in three to four months, the fund will be immediately closed to new money,” he said.
Grace added that the money which he previously managed always came from close associates, friends and relatives and that his key goal is to protect performance by keeping the size of the fund small.
Grace founded Goldsky Investments in 2011 and up to 2015 traded all types of assets for private and corporate clients.
For 12 years, he traded solely for himself under a proprietary account at the Sydney futures exchange, and in the process developed his own personal trading strategy.
When he decided to just focus on trading his accounts, his friends soon asked him whether he could also manage their money. “There was really no plan to launch the hedge fund but I just loved the independence of doing things on my own and enjoyed trading,” he said.
The Goldsky strategy is relatively conservative running gross exposure of 150% at most and the fund is almost always 90% invested in the markets while holding the balance of 10% in cash.
To give back to his community, Grace together his wife Janey recently established the Sleep Safe Sleep Sweet (SSSS) Foundation for homeless youths in Australia with Goldsky contributing $100,000 and pledging 25% of all future management fees to the venture.
Grace said his wife thought long and hard about how SSSS will operate to ensure its effectiveness and longevity instead of just being a stop-gap, band-aid solution to the problem of homelessness that affects more than 300 people in the Grace’s northern New South Wales home region of Tweed Heads.
The foundation will undertake a seven-step program to help disadvantaged youths. Besides providing housing, clothes and shoes, toiletries, and medical services, they will also receive career advice and mentoring from Goldsky ambassadors – former world surfing champion Joel Parkinson and Australian Olympic cyclists Robbie McEwen and Stuart O’Grady.
Friday 8th September 2017 7:43 AM ET
HFM GLOBAL NEWS, Goldsky Asset Management
HFM GLOBAL NEWS