Forming an effective market opinion of US interest rates requires a continual and exhaustive study of world events, economic data, and financial writing.
We read everything we can, travel to far corners of the world, and study the full history of economic data to reach conclusions. Our opinions must be sufficiently robust that they can be defended against the continual barrage of contrary opinions. We think that a strong economic opinion is a pre-requisite to positioning, exposure, and timing.
We eliminate liquidity, credit and assumed correlation risks, accepting only directional interest rate risk. By placing risk into US Treasuries and their futures, we concentrate our efforts on controlling exposure amounts and yield curve position to generate performance.
Our proprietary research has shown that the best any manager can do is be consistently profitable over a 3-5 year time frame. Knowing this allows us to focus on what matters—primary trends in interest rates—and hold positions through the day-to-day whims of trading sentiment.
We focus on exposure scaling instead of diversification. We scale exposure based on our conviction of the direction of interest rates. More conviction means more exposure.
The Kessler Economic Indicator
Modeled after the Chicago Fed National Activity Index, we have a proprietary ‘interest-rate-tuned’ multi-factor economic indicator to objectively measure the economy. The Kessler Interest Rate Economic Indicator measures the deviation from the normalized average of a combination of 18 US coincidental and leading economic indicators. The indicator’s output can be interpreted to mean that real economic output will be growing less than trend when negative and vice versa when positive. Interpreted into the Treasury market, a negative reading is predictive of falling interest rates, and conversely, a positive reading is predictive of rising interest rates.
Fully Advised Strategy
Our discretionary management is expressed through ‘The Kessler Cornerstone Absolute Return Strategy’. The strategy is designed to generate returns from the enduring concept of the business cycle.
Over the cycle, interest rates go up in the expansion phase as the price of money increases (concurrent with the Federal Reserve raising rates) and then rates go down in the recession and aftermath (concurrent with the Federal Reserve lowering or holding rates); this cycle has repeated every 3-10 years historically.
Treasuries make and lose return (in excess of cashflow) based on which way interest rates go. The strategy strives to capture a majority of these business-cycle-length primary trends in US sovereign interest rates by broadly having long positions when rates fall and having short positions when rates rise. Technical indicators modify this macro-economic market call in an effort to capture some shorter-term movements.
The indicators for the strategy have been chosen by how they have historically affected and logically contribute to the economy and marketplace. The strategy has about twice the volatility of a traditional bond mutual fund, or about half the volatility of the US Stock market (S&P 500). There are two vehicles to participate in the fully-advised strategy.
Separately managed account
This is an individual account directly managed by Kessler Investment Advisors, Inc. This can be done using a sub-account with your existing futures broker or by opening a new futures account with our preferred broker clearing firm, ADM Investor Services, Inc. (Parent, Archer Daniels Midland Company).
Deutsche Bank Select account
Deutsche Bank Select is the market-leading platform for accessing alpha strategies in FX, CTAs and other liquid trading strategies. The Kessler Cornerstone Absolute Return Strategy can be accessed through the platform to suit investor-specific domicile, diversification, and risk requirements.
Our non-discretionary brokerage accounts provide aided market access and guidance on US Treasuries, repo financing and futures. Drawing from our macroeconomic opinion, relationship with clearing firms, and hands-on expertise, we advise and act with clients’ permission to trade in US Treasuries, repo financing and exchange traded futures.
Please note: Kessler does not take custody of funds. Kessler interacts with segregated accounts held with a qualified clearing firm.
Currently, we open new accounts in your name with:
- Jefferies, LLC. for Treasuries and Repo
- ADM Investor Services, INC. (Parent, Archer Daniels Midland Company) for Futures
To discover opportunities in Treasuries, contact a Kessler advisor.