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“We do two of the hardest styles of investing that I am aware of.” - Alan Sheen (Tweet) Today on Top Traders Unplugged, I continue our conversation with Alan Sheen, talking about how and why he designed Dalton Street Capital’s investment strategy the way he did, and how it has performed compared to the market average over the past three years. Listen in to today's episode to learn how Alan’s strategies are different from traditional managed futures, his managerial approach that enables employees to innovate, and what an investor should ask a potential manager when doing their due diligence. Thanks for listening and please welcome our guest Alan Sheen. In This Episode, You'll Learn: Why Alan developed a hedging strategy based on volatility and liquidity The connection between the Australian and US markets Why Alan does not trade in US markets in his intra-day strategy Why Dalton Street Capital focuses on Australiasian markets “Our managed futures have had a very similar experience to most managed futures - we’ve been flat to down over the last three years. But what has dragged us through these last three years is that equity exposure.” - Alan Sheen (Tweet) Where Dalton Street Capital’s return profile comes from Why Alan also trades in medium to long-term trend following How Dalton Street Capital’s equity portfolio performs against the market average Alan’s perspective on model decay “If you’re not going to invest the way we do in a systematic manner, good luck with anything else because it’s not repeatable.” - Alan Sheen (Tweet) Why alignment of interest is important in an investment strategy How Alan approaches market research What questions should investors be asking themselves Connect with Dalton Street Capital: Visit the Website: Dalton Street Capital Call Dalton Street Capital: +61 2 8651 3489 “Model decay occurs significantly in strategies that are risk based and not behavioral.” - Alan Sheen (Tweet) Subscribe on: Full Transcript The following is a full detailed transcript of this conversion. Click here to subscribe to our mailing list, and get full access to our library of downloadable eBook transcripts! Niels Welcome back to Top Traders Unplugged, where I continue my conversation with Alan Sheen, the Founder and Chief Investment Officer at Dalton Street Capital, a global systematic investment and research company based in Sydney, Australia.  I want to dig, obviously, a lot deeper into your strategies. I think the best place, maybe, to begin is with the absolute return strategy, since this is something that you had been running before, I guess, at Dalton Street. So, can you go back and tell us about how this came about and what the strategy is trying to capture?  Alan The strategy is purely... The one that I mentioned before, this was my very first managed futures strategy that I designed. I didn't know it was a managed futures strategy at the time, and it was originally designed to hedge a basket of (and this sounds unusual, now that I repeat it, but this was the desire at the time) Australian equities over the trading day, in Australia.  Obviously, at the time, the asset owner that I was working for had a particular view, and didn't want to sell down the equity holding but just wanted to protect it during the day. Notwithstanding, I've since found out that more of the move in the Australian market happens overnight when it's closed. There's a huge gap overnight, but anyway, notwithstanding all of that.   So, I developed this hedging strategy and it was based on volatility and liquidity, because I thought, "Gosh, if this guy wants me to do a hedging strategy, all the traditional measures that I knew just wouldn't work: PEs, dividend yields, all these long-term factors were never going to work." That's when I was caught up with these guys called Quants, they were talking about the VIX, and I thought, "Well, this is interesting. Volatility and liquidity, there may be something to that.