OREANDA-NEWS. Fitch Ratings has assigned Lyxor Epsilon Global Trend a 'Strong' Fund Quality Rating. The fund is Irish-domiciled managed by Lyxor, a subsidiary of Societe Generale (A/Stable/F1).

KEY RATING DRIVERS

Fund Presentation
Lyxor Epsilon Global Trend follows a systematic, trend-following approach based on a quantitative programme that aims to generate long-term returns in markets that exhibit clear trends, and to limit losses from trendless markets. The fund had EUR76.7m of assets at end-June 2015. It was launched in 2011 and its underlying trend-following programme was launched in 1994.

Investment Process
The strategy is pure trend-following (i.e. no spread position or contrarian trades), based on the premise that markets exhibiting trends are more likely to continue to do so, providing opportunities to capture them over time. As such, the strategy's primary performance driver is the model's ability to identify price momentum and take advantage of positions accordingly.

The programme is not a "black-box" model, and its inputs are solely price data. It is a mono-model as one single signal generation system and allocation model is generated for all futures contracts constituting the global universe, made up of equities, currencies, long and short-maturity rates. This means the portfolio construction process is fully systematic and capitalises on the robustness of the statistical model.

The programme code is maintained in a robust and integrated third-party development environment, and the team operates with sound STP execution and direct market access.

While the fund is constrained by UCITS rules and has internal ex-ante volatility and margin to equity (MTE) limits (10% annualised and 20%, respectively), it may be exposed to high financial leverage.

Resources
Two experienced portfolio managers, who have been both at Lyxor for six years each, manage the fund. They are entirely focused on the Epsilon programme investment strategy and work closely with a specialised team, which supports quantitative research, model development and back-testing. The principal manager is also the creator of Epsilon's current model (2012), which has been revamped twice since its inception in 1994. An assistant portfolio manager complements the team, freeing portfolio managers from administrative burden.

The fund benefits from Lyxor's operational and risk control framework. The operational and IT environment built around Sophis Value provides for efficient workflow, supporting frequent trading needs of the fund. It is scalable and well-integrated.

Track Record
The fund's performance is impacted by two factors: market trend and market correlations. The most favourable regime is a combination of a high "trendiness" and a low correlation of assets, the most detrimental being the opposite, as was the case in 2H12. The fund, launched in April 2011, has a sound track record to date with a cumulative return of 17.2% (I EUR share class) to June 2015 and of 32.2% over the last three years.

Asset Manager
Lyxor, the fund manager, was established in 1998 and is the wholly-owned asset manager of Societe Generale. It employs 600 staff worldwide and had USD127.5bn of assets under management and advisory at end-April 2015. Lyxor provides investment management products and customised solutions in ETFs and indexing, alternatives and multi-management, and absolute return and solutions.

RATING SENSITIVITIES

The rating may be sensitive to material changes in the investment or operational processes, or in resources dedicated to the fund. A material adverse deviation from Fitch's guidelines for any key rating drivers could result in a downgrade. For example, this may be manifested in significant structural deterioration in the fund's performance. Key person risk is limited, but model risk exists. As per Fitch's criteria the rating is capped at 'Strong' as with highly quantitative processes where investment decisions are dictated by quantitative techniques with virtually no qualifying judgement.

Fitch's Fund Quality Ratings combine Fitch's experience in qualitative fund analysis with rankings and performance data from Lipper, a Thomson Reuters company. Fitch's Fund Quality Ratings offer an independent, forward-looking assessment of a fund's key performance and risk attributes and consistency of longer-term returns, relative to peer group or benchmarks. The ratings focus on the fund manager's investment process, key fund performance drivers, risk management, and the quality of the fund's operational infrastructure.