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OVERVIEW OF THE CFM INSTITUTIONAL DIVERSIFIED TRUST

The CFM Institutional Systematic Diversified Trust (CFM ISDiversified) provides investors with a diversified exposure to Alternative Beta strategies. The Fund has been designed to act as a core alternative solution for advisers who want daily pricing, transparency and low cost solutions to improve their overall portfolio performance.  The Fund is equally weighted to three well known alternative beta strategies that are decorrelated from traditional asset classes, providing truly diversifying sources of returns.

STRATEGY OVERVIEW

Two and a half decades of investment in quantitative research and development have led CFM to observe that a class of quantitative investment strategies are scalable, sustainable and less prone to decay than others. Investors can obtain a diversified exposure to many of these strategies via the CFM ISDiversified program.

The strategies rely on low frequency phenomena that have existed for decades (and in some cases, centuries), across asset classes and geographies. The CFM ISDiversifed program invests in equal proportions of risk across three diversified portfolios:

Long Term Trend Following 33%

The returns over the last 100 days of all major financial markets (stock indices, bonds, currencies) allow one to predict, with some success, future returns.  Long-term trend is a strategy with a two century track record of success.

Equity Market Neutral 33%

  1. Momentum : Trend Following not only works for the market as a whole, it also works in a relative way.  Long term winners will keep outperforming the market, and long term losers will continue trailing.  This can be tested as market neutral, risk managed strategy, using six-month lagged returns (shorter term moves are known to mean revert).  This strategy has been back tested with statistical significance since the 1960s in the US, ann since 1990 in Europa and Japan.
  2. Value : The classic Fama-French factor.  Undervalued stocks tend to outperform their peers.  Value is assessed by looking at the price to book value ratio.  Value, like market neutral momentum, has multi decade statistical significance.
  3. Quality : One can try and assess quantitatively and systematically the quality of reported earnings over time.  This leads to another market neutral strategy : buy high-quality stocks, sell low quality stocks.  Once again, CFM’s back tests of quality have a similar significant history of value and market neutral momentum.

Risk Premia 33%

  1. Selling Options.  It is well known that options carry and insurance risk premium.  Options sellers, want to be compensated for the risk they assume.  In other words, there are not enough natural options sellers to satisfy those looking for protection.  Selling options is therefore a profitable strategy on average, although it is often referred to as “picking up nickels in front of a steam roller.” Here, however, the difference between a risk managed strategy (where the short position is scaled by the market volatility) and a fixed dollar exposure is striking, with the former achieving a reasonable performance over a long period, including the 2008 crisis.
  2. Currency Carry Trade.  This is yet another “plain vanilla” strategy, relying on the difference between the interest rate paid in different currencies. Borrowing in currencies with low interest rates and lending in currencies with high interest rates allows small, but regular profits, which can at times be swamped by an adverse currency move.  The P&L profile of this strategy is similar to that of shorting options (both have a strong negative skew), but is again clearly statistically significant if risk managed and diversified over multiple currency pairs.

DISCLAIMER

The Trust Company (RE Services) Limited ABN 45 003 278 831, AFSL 235 150 (“Perpetual”) is the Responsible Entity of, and issuer of units in, the CFM Institutional Systematic Diversified Trust, and Capital Fund Management LLP (CFM) is the investment manager of the fund.This publication is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to provide legal, taxation or other advice on the subject matter. No reader should act on the basis of any matter contained in this publication without first obtaining specific professional advice. The information on this website is general information only and does not constitute investment or other advice. The content of this website does not constitute an offer or solicitation to subscribe for units in the Fund. CFM accepts no liability for any inaccurate, incomplete or omitted information of any kind or losses caused by using this information. A product disclosure statement (PDS) for the Fund is available free of charge from www.cfmaltbeta.com.au . The PDS should be considered before deciding to acquire, or continue to hold and investment in the Fund. Applications can only be made on the basis of an application form attached to the current PDS. Figures include GST unless stated otherwise performance figures are after fees and expenses and assume reinvestment of income. Past performance is not a reliable indicator of future performance. Neither CFM or Perpetual guarantee repayment of capital or any particular rate of return from the Fund. Neither CFM or Perpetual given any representation or warranty as to the reliability or accuracy of the information contained on this website. All opinions and estimates including on this website constitute judgments of CFM and are subject to change without notice. This communication is for wholesale clients use only. Not for retail clients use or distribution.

Lonsec Disclaimer

The Lonsec Rating (30/7/2018) presented in this document is published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445. The Rating is limited to “General Advice” (as defined in the Corporations Act 2001 (Cth)) and based solely on consideration of the investment merits of the financial product(s). Past performance information is for illustrative purposes only and is not indicative of future performance. It is not a recommendation to purchase, sell or hold Capital Funds Management (CFM), and you should seek independent financial advice before investing in this product(s). The Rating is subject to change without notice and Lonsec assumes no obligation to update the relevant document(s) following publication. Lonsec receives a fee from the Fund Manager for researching the product(s) using comprehensive and objective criteria. For further information regarding Lonsec’s Ratings methodology, please refer to our website at: http://www.beyond.lonsec.com.au/intelligence/lonsec-ratings

Zenith Disclaimer

The Zenith Investment Partners (“Zenith”) Australian Financial Services License No. 226872 rating (assigned 12 Dec 2017) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only. This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice. It is not a specific recommendation to purchase, sell or hold the relevant product(s). Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of futur performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments. Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at www.zenithpartners.com.au/RegulatoryGuidelines

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