JKL CAPITAL — Introduction
Part Two — Financial Performance
· Since the launch in 2018 JKL trading system has realized a historic annualized return of around 50%, with maximum drawdown of -7%;
· Sharpe ratio of JKL trading strategy between 2015 (back tested) and 2020 was at 1.5;
· JKL trading strategy has a low correlation with the price development of its underlying digital assets, and has a proven track record of averting downside risks;
· JKL Capital strategy allows investors to benefit from the highly volatile digital asset class while keeping the actual volatility of their portfolios at a rational level;
· Investors can choose between investing through a managed account or by investing directly with JKL Cayman Fund.
Since September 2018, JKL trading system has been continually achieving robust returns, whilst attaining and outperforming annual targets (see Figure 3). In the foundation of this performance lies JKL machine learning quantitative program, which is improving constantly, as new amounts of data are being uploaded into the system every 5 minutes.
Realized performance since September 2018 shows an average monthly return of approximately 5%.
Another indicator to consider is the maximum drawdown of the fund’s portfolio. Maximum drawdown is a measure of an investment’s observed loss from a historical peak to a trough, before a new peak is obtained. Since going live, JKL digital asset trading strategy has had a maximum drawdown of around 7% (see Figure 4).
Along with a proven track record of realized performance, we present the fund’s earlier performance, back tested to 2015. This enables a more detailed analysis with a larger data series (see Figure 5). Back tested data from 2015 to 09/2018, combined with realized performance between 09/2018 and the present, show high annual returns (average annual return of 96%), particularly during high volatility periods of the underlying assets.
JKL proprietary trading system has proven to not only generate high returns, but also to outperform its main underlying asset (as well as multiple traditional asset classes) in risk-adjusted terms. In Figure 6 we present the Sharpe ratio of JKL Strategy vs Bitcoin vs traditional assets. Sharpe ratio is a widely used financial measure of risk-adjusted investment performance compared to a risk-free asset. In general terms, a Sharpe ratio of >0.5 beats the market in a long-term perspective. A ratio of 1 and higher is considered as an advantageous investment and is rather challenging to achieve over the long run. JKL proprietary trading strategy achieved the Sharpe ratio of 1.5 over 2015–2020 years period, clearly outperforming BTC — it’s core underlying digital asset — as well as such traditional investments as S&P 500 and gold.
BTC price as a benchmark
Key factor of our model is a rather low correlation of the fund’s trading strategy performance with the price movements of its underlying assets. Given that Bitcoin has the highest and most significant allocation in our portfolio, it would be rational to benchmark the fund’s strategy against the price development of the former. Bitcoin is also the longest existing and the most liquid digital asset with the most developed derivatives market.
JKL quantitative trading system has generated a proven track record of averting downside risk over the period of September 2018 — January 2021(see Figure 8). Indeed, during the drawdown periods in BTC market, JKL quantitative system was able to recognise the signals and invert portfolio’s correlation with Bitcoin’s price development, thus benefiting from the downfall of its main underlying asset. Ultimately, the ability of our trading strategies to generate positive returns does not derive from the direction of price movements of the portfolio’s digital assets.
Above data highlights the efficiency of JKL quantitative models in taking profit out of the relatively high volatility of digital assets, regardless of whether the price of Bitcoin is going through an upward or downward trend.
In fact, volatility is known to be one of the main barriers to investment due to its widespread conflation with risk. Many investors worldwide appreciate the value that blockchain technology is bringing into the world, but they are all together dubious of independent crypto assets given the accompanying high levels of volatility, uncertainty of regulation and control. While personal volatility aversion remains a subjective choice for each individual investor, our quantitative team has committed itself to managing the volatility of JKL digital asset portfolio, and keeping it in well-defined limits.
Figure 9 is a visual representation of how JKL strategy’s 30 days rolling volatility compares to that of its main underlying digital asset. Historically, JKL portfolio’s 30 days rolling volatility remained within 2.5% limits, while in BTC prices it peaked above 5% multiple times over the analysed time span.
As such, JKL Capital strategy addresses the needs of those investors, who seek to benefit from the highly volatile digital asset class while keeping the actual volatility of their portfolios at a reasonable level.
Clients can invest in our strategies through two investment options:
· Managed Account
· Cayman Fund
When choosing a managed account option, client sets up an exchange account, under which they set up a sub account to be run by JKL Capital. In this case, digital assets are transferred directly to the sub account and JKL is granted with access and trading rights.
In a second scenario, clients have an option of investing in our strategies through JKL Cayman fund, regulated by CIMA, Cayman regulator.
Fung Ming Digital and Stable Quantitative Fund (JKL Capital’s CIMA registered fund) holds bank accounts (Signature Bank), custodian accounts (Coinbase Custody) and accounts with top digital exchanges (Binance, BitMex, etc).
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TO ADDRESSEE ONLY
This material is strictly confidential and is intended for use solely by professional investors (as defined in the Cayman Islands Monetary Authority from time to time). It should not be reproduced, redistributed, passed on to any other person or published, in whole or in part, for any purpose without the written consent of JKL Digital Capital Limited (‘JKL’) and must be returned on request to JKL. Although information contained in this material has been complied from sources believed to be reliable, JKL does not represent or warrant the accuracy, completeness or reliability of the information contained in this material.
The contents of this material have not been reviewed by any regulatory authorities. You are advised to exercise caution in relation to the contents of this material. If you have any doubt about any of the contents of this material, you should obtain independent professional advice. Neither JKL nor any of its affiliates, nor any of its or their respective directors, officers, employees and representatives will accept any responsibility or liability whatsoever for any direct, indirect or consequential loss arising from the use of or the reliance upon any information contained in this material. This material does not constitute an offer or an invitation to subscribe for or purchase any financial product. It is not intended to provide the basis of any credit or other evaluation and should not be considered as a recommendation to purchase any financial product.
JKL, its affiliates and/or any or its or their respective officers, directors, employees and representatives may from time to time have a material interest in the product(s) described in this material or in any investment related to the product(s), for their proprietary accounts and/or for accounts under their management, and/or for clients, which may result in a positive or negative influence on the value of the value of the product(s).
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