aiSource’s relationship with Larry Abrams of Absolute Return Capital Management (ARCM) dates back to early 2019, which was the first time Larry came to our office to meet the four partners. Since that meeting, Larry has devoted much of his time developing a track record for his Ionic strategy – a strategy that has been decades in the making.
We did a Q&A with Larry to give our readers more insight into his background and the development of his Ionic Strategy:
Q: What made you want to become a CTA and manage client assets?
A: I have never been a proponent of buy and hold (or buy and hope) investing as a valid investment strategy. Through years of trading derivatives, I have successfully had positive results with strict risk controls. With the move to electronic trading, the futures markets are very deep and fair and I realized
Larry Abrams
that I can modify my strategies to help outside investors improve the return/risk ratio of their investment portfolios.
Q: How did you come up with the name “Ionic” for your trading strategy?
A: The Ionic Strategy derives its name from the principle of Ionic Bonding in Chemistry. At a high level, Ionic Bonding occurs when 2 opposite elements interact and bond together to form a new more stable element. An example is Sodium Chloride (NaCl) which is made up of Sodium (Na) and Chlorine (Cl). By themselves, both sodium and chlorine are strong and powerful elements, however, both are toxic if consumed by humans. When they are combined, the Ionic Bond takes place and they become NaCl, commonly known as table salt, an element that is safe and essential to the human body.
The Ionic Strategy is similar to the chemical analogy in that the equity and bonds are very powerful but the occasional, significant drawdowns can make them toxic to a portfolio. Likewise, the ARCM Diversified Momentum Component is designed for considerable power, but again, significant drawdowns can occur. Given the negative correlation that exists between equities and both the bonds and the ARCM Diversified Components, combining these three products forms the Ionic Strategy. The combination of these three sub-strategies should take advantage of the powerful underlying components (equities, bonds, and diversified momentum strategy) while producing lower drawdowns than the individual components.
Q: If you could pinpoint to one aspect of your futures industry experience that assists the most in your trading strategy, what would it be?
A: Absolutely, the most important aspect is my ability to quantify and manage risk at both the individual and portfolio levels. No trader can be successful in the long run without a strict methodology and unwavering adherence to risk management, and that has been the key to my longevity as a successful trader.
Q: What do you feel differentiates your trading strategy from other CTAs?
A: There are two things that differentiate my strategy from other CTAs:
- Although I trade only futures, 3 of my propriety indicators are derived from options market data. This gives me an edge over other momentum CTA’s in that the timing of my trade entry and exits are often not the same as theirs. As far as I know, nobody else is using these indicators in their strategies.
- The Ionic program combines a traditional investment portfolio with an alternative investment strategy. This is designed to enhance returns and greatly reduce potential drawdowns.
Q: With many investment strategies to choose from, why should an investor choose to invest with you?
A: I offer over 30 years of experience as a successful proprietary derivates trader and risk manager. In the Ionic strategy, we offer a one-stop substitution for a portion of their traditional investment portfolio. We combine a robust low correlation (to equities) managed futures program with a traditional, futures-based long equity and long fixed income position. This strategy is designed to deliver superior returns and buffer the drawdowns in the equity position through the crisis alpha generated by the Diversified Momentum component within the Ionic strategy.
Q: We consider all CTA strategies to be long-term investments. What can a client expect from your strategy if they stay invested for four to five years?
A: The Ionic strategy performance has been back-tested and it performs very well over multi-year periods. Using a 25-year hypothetical back-test of the strategy (1996-2020), we have calculated every 36-month rolling period. In the 265 periods, the average annualized return was 15.27% and there were no negative periods. Although past performance is not any guarantee of future results, my confidence is high that multi-year periods will offer positive performance.
Q: What is the best market environment for your strategy?
A: The best environment for the strategy is a high volatility environment in which some markets are making substantial moves. Additionally, the strategy should overperform during periods with either substantial inflation or deflation, and during times of political/economic turmoil. The most challenging environment for the Ionic strategy is a long term – low volatility bear market in equity markets. Generally speaking, equity bear markets are accompanied by high volatility which should be favorable to the strategy.
Q: What is the hardest part about being a CTA manager?
A: The hardest part is dealing with drawdowns even if it’s just a string of a few days. I keep the emotions out of it from the perspective of trading, risk rules, and procedures, but it’s tough to stomach.