Fund Management

AW Foreign Exchange Model Fund

Investment Process

3 steps of systematic wealth creation process forms the foundation of this model fund.

Currency Selection

    Even though the Reserve Bank of India (RBI) manages INR (Indian Rupee) against a larger basket of currencies, futures contracts are only available in USD (US Dollar), EUR (Euro), GBP (Great Britain Pound) and JPY (Japanese Yen) against INR. The model fund invests in futures and options of these four currencies

Portfolio Optimization & Risk Management
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    Both historical and forward correlations(standard deviation) drive the risk optimization process.

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    Risk is spread across the liquid points in the futures curve. Specific allocations are driven by roll yields.

Portfolio Construction
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    Interest Rate and economic differentials form the foundation for both short term tactical and long term strategic allocations.

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    Identifying valuation multiple for each Industry through extensive testing on over 80 financial parameters.

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    Allocation decisions are based on a combined model scoring mechanism integrating econometric, technical and statistical factors.

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    A discretionary overlay seeks to capture high conviction profit opportunities and avoid potential drawdowns resulting from economic and political event risks.

Investment Philosophy

Foreign Exchange is the largest asset class in the world with a daily turnover of more than 5 trillion USD. Historically, it has also seen low correlation with traditional asset classes such as fixed income & equities. In a truly globalized world as ours, foreign exchange is the main transmission mechanism for maintaining economic and trade balance across the world. Foreign Exchange Funds are one of the best tools to capture growth in a country like ours in midst of increasing productivity and tightening fiscal reforms. Besides, foreign exchange traded funds aim to serve as a hedge against the U.S dollar which is expected to weaken in the long term.

Objective

The objective of NV All Weather Foreign Exchange Model Fund is to seek absolute returns by performing a rigorous foreign exchange fundamental analysis and investing in the foreign exchange market. Exposure to currencies will be through investing in the futures & options markets on a no leverage basis (the gross exposure will always be less than 100%). The cash component of the fund will be invested in fixed deposits or, government securities to maximize yield.

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Know your Portfolio Risk Measures: Your Portfolio quality is higher even if your steadier returns.
Alpha Alpha is the excess return of the fund over the benchmark.
Beta Beta is a measure of the risk of the portfolio in comparison to the benchmark. A value of Beta <1 means lower risk than the benchmark while a Beta >1 means the risk is higher than the benchmark.
Annual Tracking Error Tracking Error is the divergence of the portfolio in comparison to the benchmark. It explains the excess risk in the porfolio as compared to the benchmark. It should be understood along with the Information Ratio.
Information Ratio Information Ratio(IR) explains the risk adjusted performance of the fund against the benchmark. IR is the ratio of portfolio excess returns (against the benchmark) divided by the Tracking Error. IR>1 is very good as it means that the excess return generated was greater than the excess risk vis-a-vis the benchmark.
Maximum Drawdown Maximum Drawdown is the maximum historical loss realized by the portfolio on a Mark to Market (MTM) basis. It indicates the maximum downside risk over a specified time period. A Maximum Drawdown lower than the benchmark indicates a better risk-adjusted portfolio.

Investing Involves Risk. This document is for information purposes only and should not be viewed as a legal offering document or solicitation. Offers to invest in this fund are made only by the Discretionary Portfolio Management Services Agreement. Past performance does not guarantee future results and there is no assurance that the managed accounts will necessarily achieve its objectives. Any forward-looking information and/or opinions contained in this document are based on the market information available at the time of publication and are subject to a number of known and unknown risks, uncertainties, assumptions as to future events and other factors that could cause the actual results to differ materially from those implied by the information set forth herein. This information is confidential and is intended for only the person or entity to whom it was sent and in no circumstances may this material be shown, copied, transmitted, or otherwise given to any person other than the authorized recipient. The sector allocations and holdings shown are based on the strategy's model portfolio. The holdings shown do not represent all of the securities purchased, sold or recommended for any particular advisory client and in the aggregate may represent only a small percentage of an account's portfolio holdings. Actual portfolios may differ as a result of account size, client-imposed investment restrictions, the timing of client investments and market, economic and individual company considerations. Securities are shown for illustrative purposes only and are not a solicitation to buy or sell any particular security or invest in a particular sector. Narnolia Velox may act as either a discretionary investment manager or a non-discretionary model provider in a variety of separately managed accounts. Any performance information included herein represents the performance achieved by Narnolia Velox as a discretionary investment manager with trade implementation responsibility for accounts included in a performance.

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Analyst Mohalla