Investment Process

Idea Generation

Transparent Executable Fund Strategy

 

  • The SML Capital Managed Risk Fund is a consistent, repeatable strategy that:
    • Generates Risk Adjusted Driven Returns
    • Produces Above Average Performance
    • Creates long-term capital growth of invested capital.

The Fund employs a “best offense is a good defense” philosophy and is designed to achieve high, risk adjusted returns that exceed the general markets over the long term.

 

Research Process

Disciplined Repeatable Rules-Based Process 

 
The Managed Risk Fund strategy is composed of 3 components, designed to work together to weather any market environment in a systematic way:
 
•a long position in the SPY ETF (S&P500 index)
•a long position in a SPY leap put option
•a short strangle with SPY, adjusted on a monthly basis
 

  • During a strong bull market, the long SPY portion of the portfolio generates the bulk of the returns, while the leap put’s loss of value is hedged by the short strangle.
  • During a strong bear market, the exponential gain of the leap put covers the linear loss of the SPY ETF, and then some.
  • During a sideways market like 2011, the SPY position and the leap put neutralize each other, but then the short strangle generates income.
 
 
 
 

Portfolio Construction & Exposures

 

The Managed Risk Fund employs a strategy that is designed to give investors exposure to the U.S. equity market in a secure manner, by capturing 70% of the upward moves of the S&P500 index, while limiting the volatility & downside risk. The Fund systematically hedges investors against major declines but nonetheless lets them participate in rallies making money in bull, bear and flat markets. The Fund is designed to generate year over year compounded returns growing capital exponentially and outperforming the S&P 500 benchmark over the long term.
 
By being highly correlated to the S&P500 during upward moves, and having ultra low correlation during downward moves, the strategy creates wealth during bull markets by preserving capital in bear markets.
 

Risk Management

SML Capital Fund Strategy

Markets tend to fall at a greater pace than when they rise, and historically, markets have a “take the stairs up, while taking the elevator down” cycle of performance. The SawMill Lane Managed Risk Fund eliminates the challenge of timing the equity markets and the opportunity risk of not having a sustained investment in the markets (missing cyclical bull markets) that is the basis for creating long term capital wealth.

By achieving a 70% correlation to the equity markets when they are up and less than 5% correlation to the equity markets when they are down, the Fund enables investors to take advantage of long term asset appreciation in the equity markets with minimal downside risk.

The fund allows investors to securely maintain a sustained participation in themarkets, profit from bull market cycles, and protect capital from cyclical drawdown’s and large crisis driven market corrections.

SML Capital Portfolio Risk Management
  • Diversified portfolio across a broad spectrum of sectors and company size/market capitalization.
  • A premium is placed on liquid assets and all investments are highly liquid, portfolio and all positions are able to be liquidated quickly.
  • Conservative use of leverage. Use of leverage is limited and used to cover all available investment opportunities. Portfolio margin is managed daily.