The Swiss banking group SYZ & CO has announced the launch of Oyster Market Neutral Plus, a new sub-fund of Oyster, its Luxembourg UCITS SICAV. The fund is an increased leverage version of the Oyster Market Neutral fund, whose neutral beta long/short strategy has proved itself since it was launched four years ago. Managed by SYZ Asset Management according to the same investment process and with the same diversification and non-correlation objectives as the original fund, Oyster Market Neutral Plus offers 2x leverage and targets a return of LIBOR +10%.
With a target return of LIBOR +10% a year over a full cycle, Oyster Market Neutral Plus aims to achieve a performance twice as high as the original strategy. To do so, it uses twice as much leverage, which means that the portfolio’s exposure may vary from 100% to 400%. Volatility target limits will be 12%, instead of 6% for the original fund. Managed according to the same process and by the same team at SYZ Asset Management (Giacomo Picchetto and Stefano Girola), the fund also retains the same portfolio diversification and non-correlation objectives as Oyster Market Neutral. Since it was launched in August 2009, this fund has obtained some very good results, and ranks in the Top 25% of its category over 3 years and since the beginning of 2014, and in the Top 10% over two years.
Apart from Luxembourg, the sub-fund is already registered in the United Kingdom, Belgium, the Netherlands, Germany, Austria, Spain, Italy and Sweden. It should soon be registered in France and Switzerland. “With interest rates in Europe offering mediocre returns, the original fund is aimed mainly at conservative investors looking for a substitute for their bond investments. The double-leverage version will be attractive to investors wishing to invest in the equity market while limiting directional bias,” explained Xavier Guillon, CEO of Oyster Funds.
A strategy centred on anticipating revisions to corporate earnings
The strategy developed by SYZ Asset Management aims at taking advantage – in both rising and falling markets – of price inefficiencies in European equities, while maintaining equity market exposure as near as possible to zero. Alpha generation is extracted by anticipating revisions to corporate earnings forecasts since consensus estimates suffer from structural biases that can be exploited. Indeed, analysts have a tendency to “fall in love” with the companies they monitor and, what is more, are afraid of harming their relationship with company management by being too aggressive. They therefore tend to adjust their figures after publication of earnings results instead of genuinely anticipating them.
In addition, even in the case of a reversal in the economic cycle, companies tend to remain set in their tracks until their budgets are next reviewed. Finally, the reduction in the number of analysts for economic reasons has led to under-coverage of companies, in particular among small and mid caps, which increases inefficiencies. A sound network of contacts within companies together with proprietary, multi-factor filters then serve as a basis for a bottom-up investment approach and genuine fundamental analysis. The fund does not use complex structured products and restricts itself to long/short positions in European equities.