Shortlist: Best managed futures hedge fund; Best directional hedge fund over three years; Best directional hedge fund over 10 years

Launched in September 1997, Lyxor Epsilon Managed Futures Fund considers itself to be a pioneer in the managed futures industry. Its strategy has been used within the Société Générale group since 1994.

The first fund launched in 1994 was a French FCIMT. Then Lyxor Epsilon Managed Futures was launched as an Irish trust to reach a wider European audience. In 2011 a Ucits version of the strategy was launched.

Since 2009 the strategy has also been used in Asia via a local distribution deal. On May 6, 2011, the Hong Kong Securities & Futures Commission (SFC) approved shares of the fund to be distributed to Hong Kong investors. The group also aims to make the fund available in the US.

The strategy is based around a 100% systematic investment approach devised to capture mid to long-term trends in a broad set of diversified global futures markets. It trades a variety of assets, including equity, fixed income and commodities, in 51 liquid markets.

The fund’s investment objective is to maximise absolute returns under specific risk constraints expressed in terms of diversification and volatility. It targets an annualised volatility of 13%-15% over the medium term.

The managed futures industry is competitive and innovation-driven. The fund has worked to maintain its competitive edge and the managers believe the key strengths of the fund are its structure and business environment. Running the strategy within a major asset management group gives depth of support services.

Liquidity and transparency also gain from being within a large company.

The fund maintains a pure mid to long trend-following strategy. The managers estimate the fund could grow to about $1 billion assets under management without impacting the investment model.

The fund does not mean-revert nor use shorter-term models. Its investment process has been refined over time to improve the standard long-term following model of the 1990s. For example, the managers have coupled short-term risk control and dynamic asset allocation to mid to long-term trend recognition.

A proprietary trend selection filter to mitigate whipsawing on mid-term signals has also been introduced. This means the fund can retreat quickly in adverse markets and redeploy capital rapidly when there is an interesting trend to capture.

On risk, the fund is equipped to deal with sudden volatility spikes and market reversals. On the trend-following side, the fund has increased its early trend-recognition skills.

Fund facts
Full name of fund: Lyxor Epsilon Managed Futures Fund
Name of portfolio managers: Philippe Balthazard and Jean-Marie Laurent
Name of investment/management company: Lyxor Asset Management
Contact information: Emeric Uhring, Lyxor Asset Management. MARK/SOL/LYX/SMK, Tours Société Générale, 17 cours Valmy, 92987 Paris – La Défense cedex (+ 33 1 42 13 35 92; emeric.uhring@lyxor.com); Client Service (+ 33 1 42 13 31 31; client-service@lyxor.com)
Launch date: August 29, 1997
Assets under management: $235 million (at end April 2011)
Annualised return: 10.18%
Annualised volatility: 13.72%
Sharpe ratio: 0.53
Strategy: managed futures
Share classes: euro US dollar (A); yen (C); H class (registered with Hong Kong’s SFC) HK dollar, Australian dollar, yen, US dollar and euro
Administrator: Euro-VL (Ireland)
Auditor: KPMG (Ireland)
Legal counsel: Dillon Eustace
Domicile: Ireland
Listing: Irish Stock Exchange
Management fee: 2% (including 0.06% trustee fee)
Performance fee: 20% above Euribor 6M
Lock-in: none
Redemption/liquidity terms: daily