Strategy
Telesis Capital’s strategy focuses on four key components: pure alpha, liquidity, quantitative trading, and short-term trading.
ALPHA
The two major sources of return, beta and alpha, were not created equal. Beta is easily acquired, for example via the stock market, the bond market, the real estate market, and so on. After all, it simply requires the investor to believe that, in the long run, the asset being held will appreciate in value. Alpha, by contrast, requires skill in the selection and/or sizing of one’s holdings. Furthermore, as has been demonstrated in beta-oriented strategies repeatedly--most recently from late 2007 until early 2009--beta delivers poor risk-adjusted return in the long run. Since 1990, for example, global stocks have gained a meager amount, while they have suffered at least two drawdowns greater than 50% each (March 2000- December 2002 and October 2007-March 2009). Alpha strategies, by eliminating beta and focusing on skill, offer the opportunity for improvements in risk-adjusted return. The case for alpha is compelling, both theoretically and statistically. It is for this reason that it is a core component of Telesis’ strategy.
LIQUID
Liquidity is, for Telesis, one of the most important foundations of successful risk management. If an investor buys an instrument that she cannot sell (at least not without significantly negative price impact), then it becomes an enormous challenge to manage risk, particularly during market conditions which require risk management the most. Telesis’ investment strategy focuses exclusively on very liquid instruments, giving us the chance to manage risk effectively even in stressful market conditions.
QUANT
Quantitative trading is difficult for many investors to understand, but it is also known to be exceedingly rewarding when done well. Telesis Capital makes this exciting approach to trading accessible to investors by building a diversified portfolio of strategies, managed by some of the brightest minds in the business, all with the oversight of Telesis’ experienced team of investment professionals. And, as made clear by Rishi Narang’s book, Inside the Black Box: The Simple Truth About Quantitative Trading, it turns out that quant trading is not so difficult to understand after all. Quant traders generally implement the same kinds of trading strategies as their discretionary counterparts. The major differences are that a good quant performs rigorous research in many detailed aspects of the investment strategy before committing capital to it, and that the quant implements the strategy in a disciplined and consistent manner, to maximize the edge discovered through research.
Short term trading, for those “in the know,” is a widely sought-after and rather rewarding pursuit. Our research has shown that strategies which turn their positions over relatively frequently tend to be less crowded, produce more consistent, risk-adjusted returns, and offer better diversification characteristics. However, they cannot handle large sums of capital, making them less popular with investors and trading firms that have to put huge amounts of assets to work. Telesis Capital, however, is perfectly willing to sacrifice size in order to improve its portfolio. Telesis is not interested in an “exit strategy,” but rather in creating a lasting, successful portfolio for its investors and itself to share.
