The Dalton Street Capital Absolute Return Fund

Dalton Street Capital

The Dalton Street Capital Absolute Return Fund is an equity backed managed futures strategy. It was launched to the retail market in June 2016, however co-founder and CIO Alan Sheen has been trading institutional money in the strategy for over two decades.

Sheen and co-founder Nick Selvaratnam describe the fund as an "absolute return investment manager that invests based on mathematically established principles of behavioural finance and rigorous logic."

The team manages the fund with the following guiding beliefs and strategy.

  1. There are different drivers of short and long-term returns: a. Company and industry dynamics drive long- term returns; b. Volatility, liquidity and inter-market relationships drive short term performance.

  2. Investment markets demonstrate numerous generic behaviours: a. Across sectors, geographies and time frames; b. Which are persistent in nature; and c. Therefore are an investment opportunity

  3. An integrated approach can deliver superior investment outcomes. This involves: a. Tactical strategy to harvest generic market behaviours that are persistent; and b. A strategic equity portfolio to harness long term equity returns.

  4. Market inefficiencies are best exploited by a scientific, dispassionate process.

  5. An underlying long-only equity portfolio will deliver strong returns over the long term and provide diversification benefits to the tactical strategy.

The process has the following key elements.

  1. To capitalise on daily related market relationships, interconnected with a strategically constructed high quality Australasian equities portfolio.

  2. Daily trading using mathematically established principles of behavioural finance and rigorous logic.

  3. To capitalise on daily share market volatility through capturing the market volatility aspect of stock movements caused by inefficiencies.

  4. The quantitative factors used remain persistent over time due to behavioural biases.

  5. The use of 'smart' intra-day leverage with zero overnight leverage.

  6. No engagement in the short-selling of equities.