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Greenwave Capital: 20 Years of Negatively Correlated FX Alpha

Fundamental, opportunistic trading; readying UCITS

Greenwave Capital Management, LLC runs one discretionary macro strategy, offered at a range of risk levels, through funds or managed accounts. The strategy is predominantly focused on seeking out the best opportunities in G20 foreign exchange. Though themes are medium to long term, the manager is highly selective in picking which ideas to trade at any time, and the core views are managed through tactical trading and robust risk management. Greenwave received The Hedge Fund Journal’s CTA performance award for best risk adjusted returns over three- and ive-year periods ending in December 2018, in the discretionary CTA (assets between $250 and $500 million) category. The performance rating measurement is strictly formulaic – 50% Sharpe, 25% Sortino and 25% Calmar.

Return proile

The CIO, Jamie Charles, has been remarkably consistent for a macro trader, having only had two losing years in the past twenty (which are made up of 12 years at Greenwave, and eight previous years while managing capital for findividual clients and macro fund Denali Asset Management). There were no losing years prior to 2013. The only two down years have been 2013 and 2017, both of which saw sharp declines in implied and/or realised volatility in currencies – an environment that can present headwinds for Charles’ approach. When he has been able to foresee periods of low volatility, the trading style has been modified accordingly.

Charles is distinguished in having been among few managers to have profited in the three very different years of 2007, 2008 and 2009, characterised by bubble, bust and recovery. Similarly, Greenwave delivered positive results in February, October and December of 2018 – months that saw both equity stress and poor performance for many diversifying strategies such as traditional trend-following CTAs. Returns have averaged c.7% with c.12% volatility, which is a reasonable ratio for a liquid strategy trading through multiple cycles. But it is the pattern of returns that is most interesting from a portfolio diversification perspective: historically, Greenwave has been negatively correlated to equities (-0.33 vs the S&P since inception/-0.55 when the S&P is down) and positively correlated to market volatility. In addition, most of Greenwave’s volatility is on the upside, and the return profile has a huge positive skew, with stand-out months including +23.82% in October 2008, and +18.54% in September 2011 (for the Flagship Plus program). Not surprisingly this is also reflected in a very low downside volatility of only 4.73%.

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