Duration Capital's futures overlay strategies are designed to generate uncorrelated alpha while preserving a portfolio's systematic exposures. Our alpha overlays offer two additional advantages. First, because beta can be satisfied through passive instruments, active management is concentrated entirely within our futures portfolio — executed through liquid sovereign bond futures that qualify for tax advantaged capital gain treatment. Second, active risk is calibrated to each client's specific objectives. Our uncorrelated alpha overlays improve capital efficiency and enhance risk-adjusted return outcomes. The Municipal Bond + SMA seeks to outperform a Municipal Bond benchmark through tactical positioning of portfolio interest rate risk (i.e. duration). Our flagship overlay sits atop passive exposure to MUB, with the goal of providing enhanced risk-adjusted returns.
| Statistic | SMA | MUB |
|---|---|---|
| Ann. Return | 5.43% | 2.97% |
| Std Deviation | 6.75% | 6.02% |
| Max Drawdown | -5.96% | -5.98% |
| Best Month | 5.04% | 5.71% |
| Worst Month | -4.96% | -2.81% |
| % Pos Months | 56% | 52% |
| Sharpe Ratio | 0.17 | -0.24 |
Duration Capital's Quantitative Active Duration (QuAD) framework has been crafted through an extensive process that includes 80 years of market data and 20 years of trading experience. The approach is fundamentally-based but executed systematically to mitigate behavioral trading biases. The QuAD Model monitors essential variables influencing interest rates—such as fundamentals (economic activity, inflation, monetary policy), valuation indicators, and market technicals—and integrates them into a cohesive, short-term directional outlook on interest rates. The framework assesses a broad set of predictive variables:
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | YTD | MUB |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | -- | -- | -- | -- | +2.71% | -2.70% | +4.34% | -4.96% | -0.61% | -0.43% | +4.51% | +0.18% | +2.68% | +0.51% |
| 2023 | +1.78% | +0.15% | +4.24% | +0.21% | -0.09% | +1.47% | +0.51% | -0.25% | -3.37% | -0.82% | +5.04% | +2.62% | +11.77% | +5.56% |
| 2024 | -0.28% | -0.25% | +0.52% | +0.52% | -1.22% | +1.42% | +1.47% | -0.45% | +2.05% | -0.29% | +1.82% | -2.54% | +2.69% | +1.26% |
| 2025 | -0.26% | +1.73% | -1.63% | -0.33% | -0.77% | -0.06% | +0.01% | +0.22% | +1.90% | +1.32% | +0.46% | -0.07% | +2.50% | +3.78% |
| 2026 | +0.80% | +1.77% | -1.77% | +1.49% | -- | -- | -- | -- | -- | -- | -- | -- | +2.28% | +0.82% |
If active returns (alpha) are correlated with the market, portfolio risk assessments can be inaccurate with standard risk metrics may be misleading. Correlated active returns highlight the lack of a new "independent" return source and an amplifyication of existing market risks. True alpha represents idiosyncratic returns—the value a manager adds through skill that is independent of broad market movements. Low correlation of active returns indicate true independent alpha.
Due to our specialized focus in global interest rate markets our strategy will look different in comparison to our managed futures and hedge fund peers. We offer differentiated performance cycles and low levels of overlap while maintaining an important diversification attribute to risk assets. We manage active risk dynamically and within a wide latitude, implementing both long and short duration positions giving our strategies the flexibility to adapt to different market cycles and environments. This dynamic approach has been successfully applied by our portfolio management team over the past 20 years during many diverse periods of market trends and regimes.