The Pure Protection Fund is the first cell of a Guernsey Protected Cell Company that implements Pure Capital Limited’s (Pure Capital) Global Equity Protection Program as an investible fund. It seeks to identify significant market moves early on, and strip out unwanted market risk.

The fund targets unwanted correlation for clients with equities or equity-linked funds by flattening down periods, and potentially increasing the profitability of large upside moves in equity markets. An investment manager would allocate a percentage of the portfolio to PPF in order to lower volatility and improve the return profile.

How Pure Trading Technology and the Pure Protection Fund Work

The Pure Trading Technology is a set of quantitative building blocks that have been developed over the past four years. The systems are driven by a range of market insights gleaned by the Pure Capital Research Limited development team over almost 20 years of watching financial and commodity markets. Using live data feeds 24 hours a day, the trading methodology uses a range of proprietary quantitative analytical methods to identify emerging short to medium term trends.

The technology upon which instructions to create purchase or sale orders is based has been designed to pick up the majority of important directional changes. We fully expect that aspects of these systems, which are the proprietary tools of Pure Technology, to be copied in due course, however at present there are aspects of the technology that may possibly be unique.

The trading positions that Pure Trading Technology produces are completely systematic, and (apart from a gross error check) there is no discretionary override. We describe this approach as ‘rules-driven’. In other words, there is no sentiment attached to the positions taken, and no potential to drift from the rules.

Trades are placed on behalf of the Pure Protection Fund by the personnel of Pure Capital through its prime broker. Trades are placed shortly before the daily close of the underlying benchmark. A typical futures position will have a lifespan of 2-20 days. The payoff is designed to replicate a ‘straddle’ that follows the market through price and time, benefiting from bull and bear market phases but losing money during trendless/choppy markets. As the futures are exchange-traded (i.e. the most liquid and easily priced exposures available) positioning can be changed at very short notice.

All hedges are imperfect, and we highlight where the Pure Protection Fund will take this into account. At present, for instance, few futures markets offer the transparency and security needed, not to mention certain administrative or tax complications (particularly in emerging markets). The Fund identifies which markets offer a liquid proxy for the task in hand. Typically the portfolio against which the Pure Protection Fund is hedged against will be:

	Maximum	Minimum	Average
Developed Market Equities	75%	45%	60%
Emerging Market Equities	40%	20%	30%
Commodities	35%	15%	25%

The presumption is that asset managers will divest up to 30% of their equities portfolio into the Pure Protection Fund, to achieve the optimal amount of portfolio protection from PPF, and this in turn should assist with their own conviction when committing the remaining 70%+.

For more information regarding the Pure Protection Fund please download the Pure Protection Fund flyer or contact Stuart Place via stuart.place@argyllinvestment.com