Risk Control

All financial investments involve an element of risk. The management and control of risk is the primary function of the managers of The 1.2 Fund. It is the belief of the managers that a strong focus on risk control is the essential element to performance in the long-term.

Risk control is focused on position management and level of leverage control. Once the managers have determined and executed the monthly trading strategy, individual positions and the strategy as a whole are closely monitored. As market conditions change the position is constantly evaluated to ensure that it remains within the funds risk parameters.

Our proprietary software updates in real time all the risk parameters in terms of profit and loss, Delta, Gamma, Vega and Theta. During the construction of the portfolio the managers intend to maintain a balanced position between upside and downside risk, for this reason it is vital to understand how the individual positions affect the dynamics of the portfolio as a whole.

Throughout the individual expiries, as the market evolves, the portfolio is continually stress tested to ensure the current positions are suitable and a proactive management style ensures adjustments are made timely where necessary.

As a result of previous material drawdowns, important changes have been implemented in risk control with a lowering of the stop loss trigger and the implementation of protective buying of outright puts and call and put spreads. The hedging of the fund's positions has proved extremely advantageous to the managers; the Fund can be at times completely hedged or, in particular conditions, overhedged (the hedging becomes a speculative poisition in either directions). The hedging enables flexibility in the management of positions and containment of potential losses during periods of extreme volatility. The flexibility develops from the fact that the long positions protect the portfolio, allowing the managers time to make adjustments to the portfolio if required and avoiding forced action at times of extreme price movements. The use of hedging not only serve as protection for the portfolio but in certain circumstances can also enhance performance.

The use of the Financial Leverage is strictly controlled as the Fund has implemented a maximum leverage level of 2 times in line with the parameters for UCITS funds; this is calculated using the Commitment Approach that takes into consideration the exposure of the portfolio delta adjusted. The objective of the managers is to maintain the leverage below 0.5 and the portfolio is immediately adjusted whenever this level is exceeded; in case the leverage approaches the level of 1 the portfolio will be deleveraged and positions further reduced.