Rothwell Investment | Investment Philosophy

 

 

Potential Investment Benefits

An investment with Rothwell Investment may provide several potential benefits to you, including:

  • Diversification across a broad spectrum of worldwide markets;
  • Ability to profit in rising or declining markets;
  • Potential to earn competitive returns;
  • Liquidity;
  • A systematic and disciplined trading methodology;
  • May improve risk/reward profile when added to an equity and fixed income portfolio.

 

Investment Philosophy

The Rothwell Investment’s investment philosophy has been based since the inception of the firm on the premise that market prices, rather than market fundamentals, are the key aggregator of information necessary to make investment decisions and that prices, which may at first seem random, actually move through time in complex, but discernible ways.

This philosophy is based on analysis of historical data that revealed that market adjustments sometimes form price trends that can be exploited for profit. Rothwell Investment believes there is an inherent return opportunity in participating in price trends that its systematic and analytic models have identified. The trading programs may participate in either rising or falling trends; they do not have a directional bias nor do they try to forecast or predict market turning points. Once a program has established a position in a market that has been identified as trending, no pre-set price target for profits is established given the highly variable nature of market trends.

Rothwell Investment believes the behavior of markets is based on investors’ expectations, which may at times adjust slowly through time and manifest themselves in long-term price trends. Additionally, markets do not always adjust immediately to new information.

Rothwell Investment’s investment decision process has been designed to find and exploit these trends. The company’s investment philosophy maintains that market prices initially react to new or emerging information or events, but the aggregate impact on price may be a lengthy process. While prices may at first represent an over or under reaction to new information, prices eventually will reflect all relevant information. In other words, anything that could possibly affect the market price of a commodity or financial instrument – including fundamental, political, or psychological factors – eventually will be reflected in the price of that commodity or instrument, but this dynamic process may lead to the adjustment of prices over an extended period. The foundation for Rothwell Investment’s analysis is, therefore, a study of market price, rather than market fundamentals or the prediction of trends.

Rothwell Investment believes that the price adjustment process takes time, since reactions of market participants to changing market dynamics initially may be inefficient; that is, investors may not react immediately to information because of differing evaluation processes, differing levels of risk tolerance, or uncertainty. Gradual price adjustments manifest themselves in long-term trends, which themselves can influence the course of events and from which profit opportunities can arise. The firm believes that such market inefficiencies can be exploited through a combination of trend detection and risk management.

 

Trend Detection

Rothwell Investment’s research is based on the belief that prices move in trends that are often highly complex and difficult to identify and that trends often last longer than most market participants foresee. There is some statistical evidence to suggest that trends exist in many markets. However, trends may be difficult to detect and it is not clear that Rothwell Investment methodologies can find all of the trends present. There is also no guarantee that Rothwell Investment will be able to profit from all of the trends that may be present or identified. Since the firm’s founding, Rothwell Investment has consistently employed its analytical methods to identify short-term to long-term trends. Comprehensive research led to the initial development of disciplined systematic quantitative models. Rothwell Investment’s computer models examine market data for systematic price behavior or price relationships that will characterize a trend. When price trends are identified, the Rothwell Investment trading system generates buy and sell signals for initiating trades. The strict application of these signals is one of the most important aspects of Rothwell Investment’s investment process.

Rothwell Investment considers that price is the combination of the signal plus “noise”, where the signal is the trend information and the “noise” is the market volatility surrounding the trend. Prices are an aggregator of market information, but “noisy” price signals have to be filtered to discover the underlying price trend. The Rothwell Investment systems examine market data for relationships among movements in prices, detecting repetitive behavior hidden within thousands of pieces of raw price data. The trading models used seek to identify signals by separating short-term market noise from relevant information – and locating a directional opportunity that has favorable risk characteristics. Rothwell Investment systems may dictate that positions be closed with a loss in order to provide downside protection, but the systems may also provide discipline to stay in markets that are inactive for long periods of time in order to achieve possible long-term gain. The firm’s investment decisions reflect the trading models’ assessment of the market itself, not an emotional response to recent economic or political data.

Rothwell Investment models do not follow price movements, characteristic of short-term volatility. Instead, the models seek to identify changes in systematic price behavior over long time periods, which will characterize a directional opportunity.

 

Trade Placement

Rothwell Investment’s experienced traders work on a 24-hour rotation schedule, executing trades worldwide in markets that are the most liquid for the specific trade that is being made. Trades are executed by teams, with each member of the team fully responsible for the trade’s fulfillment, and are recorded and reviewed for strict adherence to procedures.

Once trade signals are received, traders focus on the manner and speed with which the trade will be executed in an effort to minimize market disturbance at the best price.

Depending on market conditions, order size and other factors, traders will decide to execute a trade using a particular order type, which may include “market price,” “market-at-discretion” or “market limit.” Whether entering or exiting the markets, Rothwell Investment’s trading follows specific procedures designed to help minimize the impact of any immediate adverse price developments.

Rothwell Investment trades electronically on behalf of its client accounts and believes that electronic trading provides a faster method of accessing the variety of markets that it trades than the traditional method of placing trade orders over the telephone.

Electronic trading provides for greater order execution risk controls to be incorporated into electronic order placement which should reduce the potential for errors during the order placement process.

Rothwell Investment places futures trades for all accounts that its manages as "bunched orders" or "block orders", in which trades for all accounts are placed for execution in a group or bunch, and then are allocated to individual accounts when the order has been completed or at the end of the trading day. This process improves the efficiency of trade placement, and is intended to provide better pricing and execution of orders for all accounts. Rothwell Investment provides the brokerage firms with allocated fills pursuant to its allocation methodology.

 

Investment Programs

Rothwell Investment’s investment programs have different combinations of style, timing, and market characteristics.

While some characteristics may overlap, each investment program has a distinctive combination of style, timing, and markets. This does not mean that one program will have higher returns than another or that a certain set of characteristics is preferable for one type of market. Investment style differences are primarily based on the number of directional phases that investment programs use for markets – long, short or neutral – and how position sizes are determined, whether static or dynamic. At times, an investment program may, for certain markets, use a style different from its primary style. Timing – whether trends are recognized over a short to very long-term period – is a distinguishing characteristic of Rothwell Investment’s investment programs.