A Different Path to Alpha: How DCM Systematic Navigates Extreme Market Conditions

03 Mar 2022 - Press

Leveraging Catastrophic Risk Scenarios to Differentiate in Challenging Markets

DCM Systematic Advisors, a Geneva-based independent quantitative asset manager, has distinguished itself in the industry by incorporating catastrophic risk scenarios into its investment strategies. This approach has proven effective, particularly during volatile periods like March 2020, where the firm recorded its best monthly performance. By simulating the impact of extreme market shocks and adjusting exposures accordingly, DCM Systematic offers a defensive and diversified strategy that stands apart from traditional trend-following approaches. As the firm continues to grow, having recently secured FINMA licensing, it is poised to attract a broader range of investors both domestically and internationally.

In the face of unprecedented market challenges, such as the ongoing crisis in Ukraine, DCM Systematic Advisors has set itself apart by incorporating extreme risk scenarios into its quantitative strategies. This approach has not only allowed the firm to navigate volatile markets effectively but has also earned it recognition, including the WealthBriefing Swiss EAM award for the best management team and a nomination for the HFM EU Quant award for best multi-strategy quant management.

Jérôme Callut, Head of Research at DCM Systematic, explains, "Our strategy is inherently defensive in extreme situations, thanks to the signals we apply and our rigorous risk management. We simulate the impact of extreme shocks—whether in equities or commodities—and adjust our exposures accordingly." This methodology was particularly successful in March 2020, during the peak of market turbulence, when DCM Systematic achieved its best monthly performance.

Regarding the ongoing geopolitical risks stemming from the Ukraine crisis, Callut notes that these are among the most challenging to model. "We categorize geopolitical risks into possible shock scenarios. For instance, in response to the Ukraine situation, some of our models adopted a risk-off stance due to the spike in volatility and commodity prices, particularly energy, where our exposure was adjusted accordingly," he explains. The strategy also includes long positions on volatility to protect the portfolio and relative value trades, such as the spread between WTI and Brent, which help mitigate market direction sensitivity.

DCM Systematic differentiates itself from its competitors, particularly those employing trend-following strategies, by focusing on scenarios that other managers may overlook. "While many CTA (Commodities Trading Advisors) funds rebalance their portfolios after a market shock, we take a different approach that proactively accounts for catastrophic scenarios," says Callut. This strategy has proven valuable for investors seeking diversification beyond traditional trend-following investments.

Gaëtan Maraite, CEO of DCM Systematic, adds, "Every hedge fund has its own specialty. We pride ourselves on being a research-driven asset management firm. Our distinct approach has been validated by our performance during challenging times when other CTA funds struggled." This has solidified the firm's reputation and demonstrated the value of its differentiated strategy to investors.

Looking ahead, DCM Systematic plans to expand its research team and continue its growth trajectory. With assets under management now exceeding CHF 400 million, the firm is focused on attracting unique talent capable of identifying new paths to alpha. The recent FINMA license not only enhances the firm’s domestic and international visibility but also positions it to reach a wider audience of investors. "The global investment community highly regards Swiss asset management for its quality and regulatory oversight, and the ‘Swissness’ of our approach is a significant asset," notes Maraite.

As DCM Systematic continues to grow, its commitment to innovation and rigorous research ensures that it remains at the forefront of quantitative asset management, offering investors a truly differentiated strategy in the face of market uncertainty.