Market experience

Longshort equity hedge fund with bear market experience has a winning quarter – Christian Putz

Christian Putz BG, Opalesque Geneva:

The experience of a five-year Russian bear market has allowed Christian Putz to identify certain investment patterns in the market that he now applies to his current investment strategy.

Based in London ARR Investment Partners‘ The Global L/S Equity strategy gained 16% (net) in March, with a Sortino ratio of 1.43 and an annual return of 10.4%. It is currently up 27% year-to-date (as of April 13, 2022).

The Eurekahedge Long Short Equities Hedge Fund index is down -3.5% in Q1 and the HFRI Equity Hedge (Total) index is down -3.8%.

“The strategy benefited from both the long and short sides. We shorted overvalued technology companies and went long in the energy and industrials sectors, as well as bounce situations in stocks. oversold Kazakh companies,” Putz, CEO and portfolio manager of ARR told Opalesque.

Prior to founding ARR in 2015, Putz worked at Kazimir Partners managing their Long/Short Equity master fund and specialized in Eastern European markets. He began his career in institutional investment management at MAN Group.

He will present to Webinar Manager Discovery Panel May 3.

Excellent risk-reward opportunities

To achieve both attractive long-term returns and capital protection in the event of a downturn, ARR uses a quantitative approach to invest in opportunities with an asymmetric risk/reward ratio – hence the name ‘ARR’.

The term quantum is a portmanteau of quantitative and fundamental and therefore refers to an investment strategy that involves combining quantitative and fundamental approaches to investing, with the aim of enhancing returns. A asymmetric risk/reward is an imbalance between risk and reward. Thinking in terms of risk-reward ratios, positive asymmetric risk-reward occurs when the risk taken is less than the actual profit or when the potential for gain is greater than the potential for loss.

“Our investment process at ARR is both top-down (to avoid strong market corrections, therefore for risk management purposes) and bottom-up (to take advantage of strong movements in individual stocks, therefore stock picking) “, explains Putz. “So globally we are looking at all sorts of risk factors like exchange rates, volatility, leading indicators, (top-down) liquidity factors so that we are not taken by surprise by significant developments. time, we examine our stock market universe for the best longs and shorts according to fundamental and technical criteria (bottom-up).

Here, ARR examines the four investment models that are characterized by great risk-reward opportunities: (1) Long Stock Rebounds, (2) Long Dynamic Earnings Growth, (3) Short Hype/Bubbles, (4) Short Structural Losers / Downtrends. The portfolio holds high conviction positions (15-40) and risk is actively managed with short positions, stop-losses and put options.

Behavioral advantage

Much of the strategy’s success in the past has been due to maintaining flexible exposure and an unconstrained mandate. This allows ARR to have strong conviction and rush to its best investment ideas, but also to be patient when it doesn’t see good opportunities. This describes the behavioral advantage of ARR.

“For example, in February/March 2020, when Covid spread across Europe, the risk was clearly on the downside and the risk-reward for short trades was often 1:5 or better,” Putz says. “February 2020. if you’re right with your thesis that Covid will be a global problem and not just a Chinese problem, you’re making a lot of money bypassing airlines, oil and gas companies, etc. If you are wrong and covid is forced into china you may lose a little money but nothing compared to what you could gain so we are one of the few hedge funds to also be net short if we see any great opportunities on the short side (flexible exposure and unconstrained mandate).”

The strategy grew 34% in 2020. However, the following year it lost 20%.

“Performance in 2021 was disappointing as certain themes did not play out as we would have hoped,” he notes. “For example, we viewed some Chinese companies with excellent fundamentals as attractive investments, but in hindsight we underestimated their political risks. The same goes for some renewable energy stocks which fell despite exceptional fundamentals A key lesson learned is to remember that when political risks exist, they can often outweigh the effect of fundamentals, just as we have seen in the ongoing Russian-Ukrainian crisis. ”

Bear market experience

Putz’s experience as an investor in Russia during a prolonged bear market (March 2011 to January 2016) has shaped ARR’s investment strategy today. Throughout this period, there were several times when stocks fell more than 20% in two months, where he identified certain investment patterns (both long and short) that he formulated and applied to the process since. Putz has been investing worldwide since 2015.

Next Opalesque webinar:

Manager Discovery Panel: London

Join us for an interactive presentation and discussion with five London-based equity managers:

• Théron de Ris, Eschler Asset Management
• Richard Simons, Derby Street
• Mark Walker, Tollymore Investment Partners
• Christian Putz, ARR Investment Partners
• Mathias Wikberg, Agera Capital

When: Tuesday, May 3, 2022 at 11 a.m. ET
Free registration: https://www.opalesque.com/webinar/