End of year review 2024
Uncorrelated Strategies Fund
This is a marketing communication for professional investors only. Capital at risk.
Past performance does not predict future returns.
Full year review 2024
The Atlantic House Uncorrelated Strategies Fund returned -0.34% in 2024. Since launch, the fund has delivered an annualised total return of 4%, with a correlation of just 0.08 to equities and -0.32 to bonds. After a strong performance of 8.7% in 2023, the fund faced some headwinds in 2024, as whipsawing markets and a summer mini flash crash created a difficult environment for several underlying strategies. However, the fund has performed in line with expectations given these conditions, which we know can be particularly challenging for the fund. There have been no changes to the investment process, and we remain confident about the outlook of each strategy. Atlantic House remains dedicated to delivering outcome-orientated solutions with a predictable investment journey over the long term.
Atlantic House Uncorrelated Strategies Fund Performance
Past performance does not predict future returns.
Source: Atlantic House 31/12/24
Long Volatility – Tail Risk
Underlying assets: Equities and Interest Rates
Contribution to performance:
-4.42% (31/12/24)
Rationale for inclusion:
This is the crash protection element to the fund which has not been needed this year. This portion of the fund will provide positive performance as and when there is a crash. Absent this, it could contribute negatively, which we fully expect to be outweighed by positive, long-term performance from the other elements of the fund.
Explanation of performance:
Excluding snap French elections announcement in June and market wobble in August, 2024 has been a year marked with low realised volatility. So, it will not be surprising that the Tail Risk sleeve detracted from the performance of the fund. For comparison the EurekaHedge Tail Risk Hedge Fund Index was down -1.7% in 2024, while an investment in the ProShares VIX ETF would have dropped -26% over the same period.
Our Tail Risk strategies are designed to deliver strong returns during sudden, significant market shocks—events we define as equity markets falling by more than 10%. However, maintaining long volatility exposure is like holding insurance: it comes at a cost. To manage this, the fund uses a combination of ‘always-active’ and ‘signal-based execution’ Tail Risk strategies. Certain protections, such as long VIX options, can be prohibitively expensive to hold. For these, we employ a systematic, rules-based approach that activates positions only when specific market signals are triggered. This “just-in-time” method allows us to capture the large, convex payoffs we target while keeping performance drag to a minimum during calmer market conditions.
We currently have this protection in place in US and European equity markets, given this is where the majority of our clients’ equity exposure is concentrated. In absence of any market shocks, we expect the sleeve to have a small negative carry on an on-going basis. Frustratingly for the fund but good for our clients’ broader portfolios, US and European equity markets had another year where they failed to drawdown by more than 10%.
The underperformance from the Tail Risk sleeve came primarily in August. For those needing a refresher, August saw a sharp spike in volatility as thin summer trading conditions coincided with weak U.S. economic data and the unwinding of Japan’s carry trade, triggered by an unexpected interest rate hike from the Bank of Japan. However, the crisis was over almost as quickly as it began. The Japanese equity market, which at one point plunged 25%, ultimately ended the month down just -1.1%. More critically, the two markets where we hold Tail Risk exposure—US and European equities—fell, but not far enough to activate our insurance. The S&P 500 dropped -9.84%, and European markets fell -8.45%. Adding to the frustration, our signal-based strategies began executing long VIX futures just before markets quickly rebounded. The VIX surged from below 20 to 65 by August 5th, only to retreat back below 20 within a two day period. This combination of a sudden drop followed by a sharp reversal—a textbook flash crash—created one of the most difficult environments for Tail Risk strategies. As a result, the Tail Risk sleeve detracted -2.3% from the fund’s performance in August. While signal-based strategies can struggle in these rapid, whipsawing markets, they remain far more cost-efficient to hold over the long term.
US and European Equity market 2024 drawdowns
Past performance does not predict future returns.
Source: Atlantic House 31/12/24
2023 Fund Reviews
Sleeve performance
Monthly attribution analysis
Past performance does not predict future returns.
Source: Atlantic House 31/12/24
Performance by sleeve
Past performance does not predict future returns.
Source: Atlantic House 31/12/24
Sleeve contribution to performance
Past performance does not predict future returns.
Source: Atlantic House 31/12/24
Long Volatility – Trend
Underlying assets: Commodities, Equities, Interest Rates, FX, Credit
Contribution to performance:
-1.54% (31/12/24)
Rationale for inclusion:
Trend-following strategies work more often than they don’t. They work well in grinding, downward markets, typically with little correlation to traditional asset classes. We have seen quite a “whipsaw” like market recently which has led to this portion of the fund delivering negative performance. However, we have no reason to believe that over the long term, trend-following strategies will not continue to deliver positive returns.
Explanation of performance:
2024 was, on the surface, a solid year for the average trend-following fund, with the Eurekahedge CTA/Managed Futures Hedge Fund Index up 4.55%. However, this masks significant divergence beneath the surface. Longer-term strategies benefitted from staying long equities, while shorter-term strategies struggled in choppy, whipsawing markets.
The Fund focuses on shorter-term trend strategies, designed to deliver stronger crisis alpha during market declines. However, when markets drop sharply and rebound just as quickly, these strategies can be wrong-footed. This was particularly evident in August and October, when the Trend sleeve detracted 0.9% and 0.7%, respectively. In October, rising expectations of a Trump victory drove trend reversals across asset classes, with particularly sharp reversions in USD rates and currencies, which further pressured shorter-term trends.
Diversifiers – Volatility Carry
Underlying assets: Equities, Credit
Contribution to performance:
+1.68% (31/12/24)
Rationale for inclusion:
Volatility Carry strategies tend to deliver quite consistent positive returns with the occasional drawdown, one of which we saw in June. Implied volatility tends to trade above realised volatility and when implemented carefully, volatility carry strategies are a good long-term hold.
Explanation of performance:
The sleeve was performing as expected prior to June, earning the volatility risk premium from selling volatility to the market. June then saw President Macron call a snap election in France and although global markets were largely unaffected, European equity and credit markets faltered. This caused spreads in the financials heavy iTraxx Main index to spike as companies such as BNP and AXA came under pressure. The election ended up being somewhat of a non-event from the market's point of view, with the left pulling together to prevent the RN party winning a majority. However, the spike in volatility negatively impacted the funds short European credit volatility exposure, detracting around -1.2% at fund level. Short drawdown in markets reflect our decision to sell shorter dated volatility within the sleeve, even though there was a drawdown in the isolated strategy, implied volatility rose after the event, and the strategy was able to capture this, recovering all of the losses by the end of the year.
The Volatility Carry sleeve began to recover its June losses but faced another setback during the market wobble in August. A sharp volatility spike caused the sleeve to fall 3%, though by the end of September it had already recovered three-quarters of that decline. Performance improved through October and November, driven by the continued richness of implied volatility relative to realised volatility, which at times widened to as much as 5 points. Implied volatility—reflecting the levels at which the strategies sold volatility—remained elevated due to uncertainty surrounding the U.S. election. However, realised volatility was much lower, as the election process unfolded smoothly and concluded in an orderly fashion within a day.
Volatility Carry Sleeve Performance Contribution
Past performance does not predict future returns.
Source: Atlantic House. 31/12/23 to 31/12/24
Diversifiers – Dispersion
Underlying assets: Equities
Contribution to performance:
+1.02% (31/12/24)
Rationale for inclusion:
Partly due to structured product flows globally, single stock implied volatility trades at less of a premium to realised volatility than index implied volatility. Buying single stock volatility and selling associated index volatility therefore tends to work well over time. This leads to an attractive return profile, uncorrelated with traditional assets which suits the fund. We are well placed to actively monitor the structured note issuance market to ensure that we trade at sensible levels.
Explanation of performance:
Dispersion performance was strong, particularly in the latter half of the year as the re-election of Donald Trump led to a bifurcation within indices with clear ‘winners and losers’ across sectors. The outperformance of the ‘Mag7’ and by extension support of the S&P 500 has been written about to no end, but this is exactly the scenario in which Dispersion strategies perform well in. European dispersion also performed well as political shifts moved across the continent over the course of the year. Europe hasn’t attracted as much attention over the course of the year but has had some notable divergence within the index. Unicredit for example has gained 60% over the course of the year, whilst Eurostoxx heavy weight LVMH has lost over 10% compared to the wider market which has returned 7.4%.
Diversifiers – Non-Directional Carry
Underlying assets: Commodities, Equities, FX
Contribution to performance:
-1.02% (31/12/24)
Rationale for inclusion:
This element of the fund includes FX Value positions and curve carry positions on various assets. Over time currencies tend to revert to their “fair value”, and forward curves on various assets tend to revert to a particular shape. We use derivatives to extract value from these phenomena. Whilst the FX Value position has made losses over the period, the strategy has both shown itself to be uncorrelated and beneficial in a portfolio context during risk off periods. We are monitoring the strategy for any excessive issues on a forward-looking basis, but we are comfortable that the fundamentals of the strategy (the reversion of currencies across global prices) remain unchanged.
For commodity carry, it remains true that there is no reason for commodity curves not to revert to their traditional shapes most of the time. The rationale for continuing to invest in this strategy remains.
Explanation of performance:
Non-Directional Carry was the worst performing sleeve in the first half of the year. The main driver of this was the FX Value. This position has suffered with the continued risk-on market punishing currencies which are largely considered to be safe havens (namely JPY) in favour of more carry friendly currencies which offer higher yields in the meantime (SEK, NOK). In periods of risk-off, we have seen this reverse, as popular carry trades favoured by hedge funds are unwound quickly when traders cut risk. Commodity curve carry was the other main contributor to negative performance of this element. This was mainly due to energy curves spiking at the end of June. Since September, however, performance has turned around. A stronger Japanese Yen, combined with a weaker Australian and New Zealand Dollar, contributed positively to returns. Additionally, credit curve strategies have carried well over that period.
Cash base less OCF
Underlying assets: US T-bills
Treasuries contribution to performance:
+4.71% (31/12/24)
In addition to the five elements discussed above, the fund also earns interest on its cash base, which is almost entirely invested in short-dated government bonds and cash. Each share class earns approximately the overnight interest rate of its currency (less OCF).
The price of shares and income from them can go down as well as up and past performance is not a guide to future performance. Investors may not get back the full amount originally invested. The level and basis of tax is subject to change and will depend on individual circumstances. There is no guarantee that the Fund will achieve its objective.
A comprehensive list of risk factors is detailed in the Risk Factors Section of the Prospectus and the Supplement of the Fund and in the relevant key investor information document (KIID). A copy of the English version of the Supplement, the Prospectus, and any other offering document and the KIID can be viewed at www.atlantichousegroup.com and www.geminicapital.ie. A summary of investor rights associated with an investment in the Fund is available in English at www.gemincapital.ie.
The Fund is entitled to use derivative instruments for investment purposes and for efficient portfolio management and/ or to protect against exchange risks. Derivatives may not achieve their intended purpose. Their prices may move up or down significantly over relatively short periods of time which may result in losses greater than the amount paid. This could adversely impact the value of the Fund. The Fund may enter into various financial contracts (derivatives) with another party. Where the Fund uses futures or forward foreign currency contracts (derivatives), it may become exposed to certain investment risks including leverage, market, mismatching of exposure and/or counterparty risk, liquidity, interest rate, credit and management risks and the risk of improper valuation. Any movement in the price of these investments can have a significant impact on the value of the Fund and the Fund could lose more than the amount invested.
The Fund invests in government and corporate bonds. All bonds will be investment grade (i.e. at or above S&P rating BBB- or deemed equivalent). If any of the bonds the Fund owns suffer credit events the performance of the Fund could be adversely affected.
In certain market conditions some assets in the Fund may become less liquid than at other times so selling at their true value and in a timely manner could become more difficult.
Other risks the Fund is exposed to include but are not limited to are possible changes in interest rates, changing expectations of future market volatility, changing expectations of equity market correlation and changing dividend expectations. Future legal or regulatory change could have a significant effect on the Fund.
This is a marketing communication issued by Atlantic House Investments Limited and does not constitute or form part of any offer or invitation to buy or sell shares. It should be read in conjunction with the Fund’s Prospectus, key investor information document (“KIID”) or offering memorandum. Atlantic House Investments Limited is authorised and regulated by the Financial Conduct Authority FRN 931264. Atlantic House Investments Limited is a Private Limited Company registered in England and Wales, registered number 11962808. Registered Office: One Eleven Edmund Street, Birmingham. B3 2HJ.
The contents of this video are based upon sources of information believed to be reliable. Atlantic House Investments Limited has taken reasonable care to ensure the information stated is accurate. However, Atlantic House Investments Limited make no representation, guarantee or warranty that it is wholly accurate and complete.
This material may not be disclosed or referred to any third party or distributed, reproduced or used for any other purposes without the prior written consent of Atlantic House, any data provider and any other third party whose data is included herein and must be returned on request to Atlantic House and any copies thereof in whatever form destroyed.
A decision may be taken at any time to terminate the arrangements for the marketing of the Fund in any jurisdiction in which it is currently being marketed. Shareholders in affected EEA Member State will be notified of any decision to terminate marketing arrangements in advance and will be provided the opportunity to redeem their shareholding in the Company free of any charges or deductions for at least 30 working days from the date of such notification.
The Atlantic House Uncorrelated Strategies Fund is a sub-fund of GemCap Investment Funds (Ireland) plc, an umbrella type open-ended investment company with variable capital, incorporated on 1 June 2010 with limited liability under the laws of Ireland with segregated liability between sub-funds.
GemCap Investment Funds (Ireland) plc is authorised in Ireland by the Central Bank of Ireland pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (S.I. No. 352 of 2011) (the “UCITS Regulations”), as amended.
Gemini Capital Management (Ireland) Limited, trading as GemCap, is a limited liability company registered under the registered number 579677 under Irish law pursuant to the Companies Act 2014 which is regulated by the Central Bank of Ireland. Its principal office is at Suites 22-26 Morrison Chambers, 32 Nassau Street, Dublin 2, D02 X598 and its registered office is at 7th Floor, Block A, One Park Place, Upper Hatch Street, Dublin 2, D02E762. GemCap acts as both management
Summary
This note has provided an overview of the performance of each sleeve of the fund in 2024 and reinforced that the underlying tailwinds for each strategy remain intact. This year serves as a reminder that the fund is not a panacea—certain market conditions can prove difficult. In particular, whipsawing markets and equity drawdowns that approach but don’t breach 10% before rebounding sharply can be challenging for the Fund’s Trend and Tail Risk strategies.
Since launch, the Fund has delivered an annualised return of 4% net of fees, meaning the opportunity cost of holding the Fund has been minimal relative to cash. Notably, US and European equity markets have yet to experience a 10%+ drawdown since the Fund’s inception. In essence, investors in the Fund have held insurance they haven’t needed but, importantly, haven’t really paid for.
For the sake of our clients' broader portfolios, we hope 2025 brings another year without a significant market drawdown.