THE EVOLUTION OF THE MAESTRO STRATEGY

Since July last year, Old Park Capital has been successfully managing Maestro on the S&P alongside Maestro on the Eurostoxx, which the investment team had initiated at Bear Stearns in January 2007.

By extending the Maestro strategy to the S&P in a way that dynamically optimises the use of capital (the notional exposure that is not used for a Eurostoxx position is made available to an S&P position and vice versa) and makes full use of the complementarities of the futures trading windows (the S&P activation window begins when the Eurostoxx activation window ends), the strategy has proved:

•  to be resilient in times of decreasing volatility;
•  to generate excellent returns when volatility is stable (even at very low levels as is currently the case), with +2.15% in April and +2.23% in May 2014;
•  to generate outsized returns when volatility is increasing as was the case in January (+6.31%) and February (+5.49%) this year.

The addition of the S&P component has worked well by boosting the strategy’s activation frequency which explains the resilience of returns in times of decreasing volatility and the generation of solid returns when volatility remains stable.

The dynamic combination of Maestro on the Eurostoxx futures and Maestro on the S&P futures works extremely well by fully exploiting the complementarities of the respective futures trading windows with the S&P Maestro activation window [from 9:30 pm London time to 2:30 pm London time the following day] starting when the Eurostoxx Maestro activation window [from 4:30 pm London time to 9:00 pm London time] ends.

In a way, this dynamic combination exploits the geographical rotation of the main source of market information across the financial centres throughout the day, from the US equity market in the European evening (causing Eurostoxx futures to be influenced by the US equity market as the European equity market is closed) to the European equity market in the European morning (causing S&P futures to be influenced by the European equity market as the US equity market is closed).

The notional exposure that is not allocated for a Eurostoxx position in the European evening is made available to activate an S&P position after 9:30 pm London time, enabling the most efficient use of capital. This dynamic combination naturally leads to an increased activation frequency (the main driver of Maestro’s performance), with the average activation frequency jumping from 50% when Maestro is applied to Eurostoxx only, to 80% in this dynamic combination. This explains the strong performance of Maestro and its resilience (to low volatility) because the dynamic combination is able to maintain a high level of activation in less favourable volatility conditions.