1. SGMT Capital Research Inc.
SYSTEMATIC GLOBAL MARKETS TREND
FEBRUARY, 2016
Investor Letter
The Market’s Gravitational Waves are observed
The SGMT trading system had a gross return of 12.80% for Level II in the month of February, 2016
Source of Returns by Currency (February 2016):
Level II Month Ccy Change SGMT Gross Return
Australian Dollar (AUD) .96% -.74%
Canadian Dollar (CAD) 3.81% 1.42%
Swiss Franc (CHF) 2.59% 1.95%
Euro (EUR) .51% 1.46%
Great Britain Pound (GDB) -2.23% 4.24%
Japanese Yen (JPY) 7.35% 4.01%
Total Level II 12.80%
2016 Gross Returns by Month:
Jan Feb YTD
.07% 12.80% 12.89%
As we envisioned in our January 2016 letter, the slowing economic risk factors continued to play into the first half of
February until after the oil price made another test of the $26 low and bounced back. To BOJ’s dismay after its surprise
negative rate on January 29, JPY strengthened to touch 110.98 where BOJ tried again to intervene. Clearly the BOJ’s
surprise bombardment strategy failed against the “waves of systematic gravity” as revealed by the psychological forces
of the markets. In the last two weeks of February, the global equity markets recovered in almost a “V” shape while the
oil and bond markets recovered in a lesser “V” shape. These market recoveries did not bring back the JPY to where the
BOJ wanted it to be. It seemed the commodity and bond markets did not share the degree of optimism as the equity
market did in February. Economic data in February generally pointed to a better expectation cycle for US and a worsen-
2. ing expectation cycle for euro and other economies. In addition, the so called “Brexit” (UK exist from Eurozone) also
played into the market's psychological moves in the last two weeks, creating high volatilities in GBP.
SGMT strategy performed well in February in this risk trend cycle and called for risk aversion positioning (recall our
January letter) in the first half of the month and then repositioned in crosses to follow the waves of market recoveries.
In GBP case, SGMT also positioned to take the advantage by sensing the “waves” from the market pricing infor-
mation.1 In the case of JPY, we took profits of 2/3 position at its highest and overwrote the model position with 1/3
to fend off the risk of another BOJ’s surprise attack such as the move indicated on February 11. Towards the end of
February, SGMT model position in JPY became aligned with the reduced position. Net PL effect during the period of
reduced JPY position is non-material in the end. In summary, we won multiple battles in February from the SGMT
model’s capability to detect the market informational “waves” in analogy to the physical discovery of gravitational
waves by LIGO US scientists in February.2
In financial markets, market participants can readily sense the existence of market forces of gravitational psychologies
that move the market prices with or without alignment to fundamental risk premiums but eventually the market reverts
back to fundamental risk alignments.3 In theory, financial professionals know the term of “risk premiums” as often
quoted by market participants but no one knows exactly what exactly they are. Often economic data, forecasts, eco-
nomic policies and events impacting risk perceptions will pull the psychological forces to bear on all or parts of finan-
cial markets. Macro trends and major capital flow cycles are the forces bearing on all major financial markets moving in
a form like “waves” of battles. By such market forces of psychologies, it is easy to pile on individual market prices to
deviate from underlying waves built by all major markets as a whole. Sometimes external surprise and/or partial market
psychological forces may create a short period, from one day to months, of individual market dislocations of the under-
lying “waves.” Both the trend and the individual psychological deviation from fundamentals are opportunities if there
is a way to detect directions and intensities of those fundamental underlying waves. The dislocations generally are unde-
tectable because they are generally market information void and potentially create periodical downside risks to a strategy
using the underlying “waves.” SGMT model designed a collection of scientific methods to identify such “waves” in
estimates of directions and intensities. Collapses of black holes generate gravitational waves traveling through space and
time. Analogically, collapses of all market psychological forces generate waves in price space and time that is expandable
or contractible with the risk perceptions. The completeness of estimating such market fundamental waves depends on
the risk spectra of the market prices in terms of price space and time. SGMT model uses active prices from the markets
that have wide risk spectra information and creates an array of resonance structures for price risk spectra to identify
“wave” directions and intensities of those filters.
In looking forward, the recoveries of global markets depends on the further dissipation of risk aversions or the differen-
tiation of global markets enforced by economic, market data and political developments that impact the market direc-
tions. As we mentioned in our January letter, the commodity markets seemed already in the pivoting point but the “V”
shaped recoveries seemed to be remotely likely. The global macro trends and capital flow cycle are far from clear at this
point. SGMT model ended at end of February with low risk leverage and cross positioning.
1
SGMT (Systematic Global Markets Trend) strategy uses advanced methods to exploit market information and identify
world macro-market cycles to trade currencies. The strategy employs advanced signal identification methods to exploit
cross markets information and determine the most probable directions of macro-economic and capital trends in the
currency markets. It has built-in risk control to automatically adjust effective leverages by using the probable identifica-
tion information from the strategy. The strategy is built into a trading system that is fully integrated into real-time data,
automated trading and risk management. All trading follows systematic rules developed from extensive research to
avoid discretionary trading activities - from the Summary of the SGMT Capital Tear Sheet.
2
SGMT uses systems theory to detect information from live market data in related markets.
3
The SGMT model is generally considered a fundamental & rational model.
3.
4. LIGO References:
B. P. Abbott et al. (LIGO Scientific Collaboration and Virgo Collaboration). Observation of Gravitational
Waves from a Binary Black Hole Merger. Phys. Rev. Lett. 116, 061102 – Published 11 February
2016 (open access)
Gravitational waves exist. The Inside Story of How Scientists finally found them by Nicola Twilley Feb 11,
2016 New Yorker
“We have detected gravitational waves” (Sept 14, 2015) LIGO Scientists Feb 11, 2016 kurzweilai.net
Gravitational Waves Hit the Late Show Brian Greene on “The Late Show with Stephen Colbert” on Youtube
The SGMT Capital Results in 2015
2015 Gross Returns by Month:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2.06% 0.20% 10.03% -12.41% 6.87% -7.33% 9.72% 4.44
%
.01% .72% -2.55% 7.82% 18.37%
SGMT is a systematic FX trading strategy, so it might be more useful to compare our returns to our peers and
similar competitors. The BTOP index is an index of other foreign exchange managers as provided by Bar-
clayHedge.com.
The following table shows the SGMT Capital vertical comparison statistics to the BTOP index components
sourced from barclayhedge.com.
Fund Name 2016 2015 2014 Annual Ret Inception Sharpe Maxdown Alpha vs SP500 Beta vs SP500
SGMT(Net) as of 2016-01-29 -0.11% 12.32% 12.32% 25.07% May-14 1.06 20.33% 1.663 -0.05
SGMTBackTest (Net) as of 2016-01-29 0.02% 13.12% 31.33% 33.73% Feb-07 1.87 20.55% 2.412 -0.40
SGMT(Net) as of 2016-02-29 9.76% 13.05% 13.05% 25.70% May-14 1.29 20.18% 2.067 -0.05
SGMTBackTest (Net) as of 2016-02-29 8.41% 13.84% 32.27% 34.51% Feb-07 1.95 20.50% 2.540 -0.40
SGMT(Gross) as of 2016-02-29 12.89% 18.37% 36.15% 35.54% May-14 1.54 18.29% 2.729 -0.05
SGMTBackTest (Gross) as of 2016-02-29 11.10% 19.37% 44.45% 47.96% Feb-07 2.07 15.88% 3.419 -0.34
Alder Capital (Alder Global 20) 4.60% -3.27% 1.15% 6.46% Feb-01 0.32 28.51% 0.600 0.01
FDOPartners, LLC(Emerging Markets Quant. Currency) 0.66% -2.37% 1.98% 1.00% Jul-01 -0.16 5.44% 0.070 0.03
First Quadrant L.P. (Tactical Currency Allocation L/S USD) 1.68% -1.53% 1.08% 1.73% May-95 -0.17 6.72% 0.150 -0.01
Harmonic Capital (Currency 10v) -0.58% 7.91% 10.45% 4.77% May-03 0.39 16.73% 0.350 0.11
Harness Investment Group Limited (FX) 0.31% -3.64% 8.28% 6.16% Apr-09 0.58 13.52% -0.160 0.50
P/EInvestments (FX Strategy - Aggressive) 2.59% 13.82% 49.08% 13.51% Oct-03 0.63 33.33% 1.140 0.08
PremiumCapital Advisors AG(PremiumCurrencies) -1.77% 5.22% 5.16% 3.43% Jan-04 0.30 14.51% 0.410 -0.13
Quaesta Capital AG(v-Pro Volatility) 0.72% 20.08% 1.00% 6.44% Jul-07 0.97 9.39% 0.580 -0.07
Rhicon Currency Management (Pte) Ltd (Strategic) -1.55% -3.33% 8.25% 4.96% Jan-04 0.54 8.56% 0.450 -0.03
Salix Capital UK Ltd. (FDFX) 1.49% 13.50% 10.82% 9.12% Jan-11 0.93 5.96% 0.990 -0.08
Source: Other Fund statistics as of January 29,2016 fromBTOX index components of BarclayHedge.com; Note: Ann Return -- annualized compounded rate of return frominception