In The News - The Hedge Fund Journal - Altana launches directors’ dealings UCITS

Altana Wealth has announced the launch of a UCITS version of their directors' dealings fund. The UCITS fund, listed in Dublin, via the Altana UCITS Funds plc umbrella, is recognised by the FCA. It is already available on a number of platforms, including AJ Bell Investcentre, is offered in pounds sterling, US dollar and euro share classes with a minimum investment amount of £/€/$5,000 and offers daily liquidity.

Altana Wealth, the asset management group, has teamed up with Godot Huard, a leading behavioural computer scientist, who has developed a unique system based on the theory that ‘directors know best’. It applies sophisticated behavioural tracking logic using a historical database which holds all US directors dealings going back over a decade, to extract the most potentially interesting purchases. The algorithm uses broad criteria to identify those directors who are short-term opportunistic buyers of their own stock and historically have been successful at timing their purchases. Altana has been successfully running the strategy since November 2014 in an offshore vehicle, and has now launched a UCITS fund to enable private investors to also invest. Back-tests for the strategy indicate an average annual return of +44% from 2010 to 2013.

Lee Robinson, founder and CIO said: “Since 1968 academic literature has supported the theory that directors know best, as they make more informed decisions based on more and more KPIs, which are now approaching near real-time information. Our system is based on a sophisticated algorithm that captures publicly available filings to isolate the short-term opportunistic buyers.”

There is much academic evidence to support the theory that the purchase of shares by a firm’s own directors can give a great insight to those investors who are ‘outsiders’ of the company in question. However, there are several critical factors which need to be considered before the theory can become a viable investment proposition:

  • The ability to analyse the large amounts of data generated by directors filings (on average in the USA, 150,000 directors' transactions a year are reported every year to the SEC).

  • Knowing how to interpret that data between option exercises, sales and genuine purchases.

  • Being able to mitigate risk by isolating which directors’ dealings decisions to follow.

Altana’s CEO, Antony Lingard added: “The idea of following directors when they are investing their own money in their own company’s stock is a simple yet compelling investment strategy to which many private investors can relate. We will cap all funds associated with this system at a total aggregate of $250 million, as we refuse to dilute performance for existing investors for the sake of growing the fund.”

Altana’s system uses a sophisticated algorithm which tracks public SEC (Securities and Exchange Commission) filings of investments in their own company made by directors or significant shareholders of US-listed companies with a market cap in excess of $250 million. The system then applies a behavioural tracking logic to extract the most potentially interesting purchases, using a wide criteria to identify the short-term opportunistic purchases by said directors.

The fund has a built-in robustness check to ensure the validity of the proposed trades. Although the stock selection is fully systematic, there is a sense check performed by the portfolio manager before any trades are executed.

The ADDS filtering stage can be categorised by the following four steps:

  • SEC filings: ADDS automatically retrieves all SEC “Form 4” filings on a daily basis.

  • Pertinence check: ADDS runs through a huge proprietary database of director trading behaviour, going back to 2003, to filter out pertinent directors’ dealings through behavioural analysis and cross-checking.

  • Scoring: using more than a dozen criteria, including financial, sectorial and behavioural characteristics both historic and current the pertinent trades are scored.

  • Alerts: only the very top 0.5% scoring SEC filings are registered as alerts and sent to the portfolio.

The stock selection is fully systematic and the stock purchases and subsequent portfolio management is process-driven.

Stocks have a seven to 30-day holding period and pre-defined stop losses. As a result, the fund aims to outperform the market in a bull market whilst de-correlating from it in a bear market with significantly lower drawdowns (because of its stop-loss mechanism).

According to Altana, the US market specifically lends itself well to the strategy, given that it is a well regulated, established stock market with significant size and trading volume.