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Quant convictions

Published in Automated Trader Magazine Issue 38 Autumn 2015

Gernot Heitzinger is CEO at SMN, a CTA based in Vienna, Austria, operating for some 19 years. Heitzinger tells AT about his quant convictions, diversification in the current market environment, and why he's cynical about forecasts.

Gernot Heitzinger, CEO, SMN

Gernot Heitzinger, CEO, SMN

Automated Trader: How did you arrive at SMN?

Gernot Heitzinger: I started my career in equity trading and discretionary equity fund management. After some years as chief investment officer in an Austrian pension fund, I took over a continental European management role at US asset management company Invesco before I joined SMN in 2004.

I always had a strong conviction about quantitative approaches to asset management and I always had my doubts about the ability of forecasting financial markets and economic events, therefore this is a perfect fit.

AT: Doubts?

GH: Forecasting markets in a consistent way is impossible unless somebody has the ability to foresee the future and the future actions of all market participants. Analysts even have difficulties to explain the present market environment.

If you look at this summer's market turmoil, most experts blame the China story, actually, the Chinese bubble burst already in June following a crazy upswing where everybody could foresee the consequences.

Of course nobody will ever be able to find the right timing in such markets. But was it really the China story that affected global markets? What if the reason for markets finally coming down was just the fact that - apart from falling interest rates - there hasn't been a fundamental reason for them to go up over the last years? Actually it does not really matter what actually triggered the downturn.

In German language we have a saying: 'Do news influence markets or do markets make the news?' Market prices are already discounting expectations of market participants. Market cycles are always cycles of greed and fear, of market psychology, which I think we can perfectly grab with the technical trend following models we use. They are not asking why do prices move, or if an asset is overvalued or undervalued, which is always on a relative basis.

AT: Can you tell about your investment philosophy?

GH: All our strategies are focused on medium to long term trend following with risk management as an integrated part of the trading system. We do believe in the benefit of diversification. In the SMN Diversified Futures Fund we are trading 200+ markets in 10 different sectors (Bills, Bonds, FX, Equity Indices, Metals, Energy, Meats, Crops, Soft Commodities and Synthetic Markets), in the Equity Fund the universe is 2400+ single stocks and we rarely hold below 200 stocks simultaneously in the fund.

The average holding period of our models is roughly 100 days, but position size is changing considerably during this period, depending on volatility, correlations and risk regime.

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