Blackheath's Tactical FI Strategy
is a pure Global Macro strategy; focused on
volatility in fixed income futures markets.


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Sub
Advisor

PI Financial Corp. is the Sub-Advisor to the Blackheath Tactical FI Strategy

Markets
Traded

Fixed Income options and futures

Investment
Strategy

Discretionary

Dynamic
Hedging

Yes

Minimum
Investment

For Managed Accounts: $50,000 (or multiples of $50,000)

Average Margin
to Equity

15%

Assets under Management

As of January 31, 2018:

Blackheath Tactical FI Strategy: US $7.10 million

Levente Mady, Sub-AdvisorLevente Mady, Sub-Advisor

Levente is a Senior Derivatives Portfolio Manager with PI FInancial Corp, the Sub-Advisor to the Blackheath Tactical FI Strategy, and a Fixed Income (FI) Market specialist with 25 years of experience in the North American interest rate markets.
Before joining PI Financial Corp in 2012, Levente managed multi-million dollar bond portfolios for investment counsel, Union Securities Ltd, where he was a Managing Director from 2009 to 2012. Prior to that, he worked in Toronto as a Fixed Income Trader for major investment dealers such as MF Global Canada (2006-2009) Resolution Capital Inc. (2003-2005) Genus Capital Inc. (1997-2002) Deutsche Morgan Grenfell Canada (1995-1997) and CIBC Wood Gundy Inc. (1990-1994). 
Levente is also licensed for, and has extensive experience in, trading financial futures and options. Combining his fixed income background with his option trading expertise, he focuses on generating superior returns in the US Treasury Bond futures market.
Levente holds an MBA degree in Finance from the University of Toronto. As well, he earned his Chartered Financial Analyst (CFA) designation in 1993.

Christopher Foster, CEO and Managing DirectorChristopher Foster, Blackheath CEO and Managing Director

Christopher Foster is a co-founder of Blackheath Fund Management and was the architect of Blackheath Sentiment Strategy.
Between 1989 and 2000 while Christopher was with Friedberg Mercantile Group (FMG) he first became familiar with analyzing crowd behaviour and sentiment indicators, under the instruction of FMG’s Portfolio Manager, Albert Friedberg. He started as a registered representative in futures and futures options contracts, before becoming an Associate Portfolio Manager and developing the genesis of the Blackheath Sentiment Strategy.
From 2000 to 2009, Christopher was with ScotiaMcLeod as an Investment Advisor and Director, Financial Services, as well as a Portfolio Manager in futures and futures options contracts. While at Scotia, he was the advisor for the first account to use the strategy – Blackheath Offshore Limited. In 2009, Christopher left Scotia to start Blackheath with a partner, bringing his innovative managed futures strategy to a wider audience.

January 2018 Performance Commentary


Composite, Pro-Forma Perfomance Net Returns

Monthly Return*

-1.92%

 
* These results are based on the NET returns of the strategy. Please refer to the note below for a description of how these returns are calculated. 

The US bond market broke out of its year-long narrow trading range as yields rose substantially across the yield curve during January. The 10-year note yield traded in a 2.60%-2.00% range for most of 2017, but closed at 2.70% at the end of last month. The bears have gone wild and all the experts are predicting that we will soon see yields north of 3% on the 10-year note. While the charts look terrible and I can't argue with the prediction for higher rates from a technical perspective, the scary proposition for me is what is likely to happen to all the bubbles that have been created as a result of negative, zero or near-zero interest rates, in case the bond bears prove to be right. As a result, we are reluctantly admitting that higher rates are likely to persist in the near future, but we are not quite ready to join the super bears that are looking for a 4%-6% yield on the 10-year Treasury note.
Central Banks were busy in various ways last month. The US Federal Reserve Bank kept its policy rate unchanged at its latest FOMC meeting (on January 31) at 1.5%. The market rates are forecasting the next Fed rate hike for mid-March. By then it will be the new Fed Chair, Jerome Powell, in charge of the Fed and some of the other vacancies on the Board may be filled as well. The policy-setting FOMC is expected to raise rates three times in 2018. The Bank of Canada raised its benchmark interest rate 25 basis points at their first policy meeting of 2018 on January 17. Slowly, most major Central Banks have either started to hike rates or consider hiking, as well as tapering their recent QE programs. Only the Bank of Japan is firmly stuck in neutral, while holding the 10-year JGB yield target close to 0% as well.
As bonds traded lower, we maintained our positive bias. Near the end of the month we ended with getting assigned on a set of 149 puts and therefore owning the March contract of the bond futures. The plan is to start writing call options on small upticks on this futures position. While short term rates have been on a steady path higher as a result of the Fed's tightening program, longer rates still seem to need some convincing that the economy will be able to function properly with normalized interest rates. As a result, the yield curve has been flattening aggressively and we expect this trend to continue.
Looking ahead, we expect a new higher range trade to be established during the next few months. I am expecting that there will be strong support for the 10-year Treasury note near 3%. On the downside (foryields) it will be a struggle to get through the former support at 2.5%-2.6%. Seasonal tendencies are neutral for bonds during the month of February. As long as the stock market holds firm and keeps breaking to record highs, bonds may be under slight pressure during February as well. Meanwhile, implied volatility started to creep up just a tad. While we still want to be in the market earning the decay on the options we sell, we plan to keep our risk exposure at conservative levels until vols rise further
All the best,

Levente Mady
Senior Derivatives PM at PI Financial Corp.,
Sub-Advisor to the Blackheath Tactical FI Strategy
(for previous months' commentaries, please click here to go to
The Blackheath TACTICAL FI Strategy Blog)

*Starting in November 2015, the track record shows the composite performance of the strategy, calculated using the Only Accounts Traded (OAT) method. From October 2011 to October 2015, (colored background), the performance shown is the proprietary, pro-forma net returns of the strategy, based on the actual trading results as observed in a single, proprietary flagship account traded under the strategy, assuming a beginning trading size of approximately US$90,000. Please note that the results for this period are based on certain assumptions that have inherent limitations, some of which are described herein. The actual broker records of this proprietary account are stated in Canadian dollars (CAD); the month-end account value was converted and restated in USD, assuming the USD/CAD exchange rate as the last price on the last trading day of each month [Data Source: Bloomberg]. Such a currency related assumption, combined with the difference in fee structure from the one assumed for this calculation, can lead to moderate leveraging in the account over certain time periods during the course of this track record. Also, please note that the proprietary account has favourably negotiated trading commissions. Additional details of this computation and calculation of the performance are available upon request.
Note: Net returns are calculated assuming a fee structure of a 2% Management Fee accrued monthly and a 20% Incentive Fee paid quarterly. Separately Managed Account performance can be higher or lower than the above reported performance of the program depending on several factors, such as commission and fee levels, investment amount, duration, the actual prices achieved, the portfolio composition and government taxes (if any). While the results here are based on pro-forma adjustments assuming the given fee structure, in reality, accounts may have a different fee structure, a different fee payment periodicity, different (higher or lower) commission levels and government taxes (if applicable) which may significantly distort the net performance observed in an actual account. Also, in reality, some managed accounts can be traded with a higher leverage and such leverage changes over time and this could result in significantly different performance in an actual account.

Estimates and projections contained herein represent the views of the writer, and are based on assumptions which the writer believes to be reasonable. This information is given as of the date appearing on this report, and the writer and Blackheath assume no obligation to update the information or advise on further developments relating to securities. The material contained herein is for information purposes only. This material is not intended to be relied upon as a forecast, research or investment advice, and is not to be construed as an offer or solicitation for the sale or purchase of securities or as a recommendation for you to engage in any transaction involving the purchase of any Blackheath product. The risk of loss in trading futures contracts or commodity options can be substantial. Investors should carefully consider the risks of investing in light of their investment objectives, risk tolerance and financial circumstances. Important information about Blackheath products are contained in their Disclosure Documents and/or Offering Memoranda.

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COMMODITY TRADING INVOLVES SUBSTANTIAL RISK OF LOSS.
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.