Late last year, Tidan Capital introduced Nova, a market-neutral options and volatility arbitrage strategy designed to exploit anomalies in equity options markets. These inefficiencies often emerge and become more pronounced during periods of market turbulence, positioning Nova to perform well in risk-off environments. Building on this foundation, Tidan Capital is now launching Tidan Global Equity Enhanced, a fund that employs a portable alpha strategy, leveraging Nova’s alpha generation while maintaining equity market exposure through low-cost futures.
The strategy aims to capture the long-term growth potential of global equities while generating uncorrelated alpha to both enhance returns and mitigate downside risk. “Investors have been interested in portable alpha strategies for decades, and they are once again a priority in today’s market environment. We are seeing growing demand for these products, including from our own investors,” says Serge Houles, CEO of Tidan Capital. This renewed interest stems from investors seeking continued equity exposure while also addressing concerns over high valuations, particularly in U.S. markets.
“Our investors tell us, ‘We still want equity exposure, but we don’t like the risk right now. Combining long-only equity with Nova, which is equity-related, is a match made in heaven.”
Serge Houles, CEO of Tidan Capital.
“Our investors tell us, ‘We still want equity exposure, but we don’t like the risk right now,’” says Houles. “Combining long-only equity with Nova, which is equity-related, is a match made in heaven,” he emphasizes. Since Nova is quite defensive and tends to perform exceptionally well during market dislocations, layering beta on top creates “a perfect fit,” according to Houles.
Structure of Tidan Global Equity Enhanced
Tidan Global Equity Enhanced is designed to maintain an allocation to the low-risk, defensive Nova strategy. The remaining capital is partially used as margin to gain exposure to the MSCI World through equity futures in order to achieve an overall beta exposure of 1. “This is essentially a global equity allocation with Nova on top,” explains Houles. “The strategy maintains the return profile of equities (a beta of 1) while delivering better risk-adjusted returns.”
“This is essentially a global equity allocation with Nova on top. The strategy maintains the return profile of equities (a beta of 1) while delivering better risk-adjusted returns.”
Serge Houles, CEO of Tidan Capital.
Tidan Global Equity Enhanced represents a more attractive equity long-only product “with a higher likelihood of beating your benchmark and better control over drawdowns,” says Houles. However, he emphasizes that the fund is still a beta 1 product, and investors should not expect positive returns in all market environments. “It’s still a beta 1 product, which means it will experience equity-like drawdowns, but they will be less severe. You can’t have it all,” Houles acknowledges. Ultimately, Tidan Capital aims to outperform by 5 to 7 percent annually, “which is significant in the equity space,” he adds.
The Nova Leg: Uncorrelated, Downside-Protected Return Source
The uncorrelated and downside-protected returns of the newly launched Tidan Global Equity Enhanced are derived from Tidan Capital’s existing Nova strategy, managed by Magnus Linder and Dennis Karlsson. By design, the Nova strategy maintains a long Vega exposure, profiting from increases in implied volatility. This means the strategy takes positions – typically long options or volatility-linked derivatives – that appreciate in value when market uncertainty or price fluctuations rise.
“It’s a highly defensive strategy,” concludes Houles. “We conduct stress tests as part of the portfolio construction process, analyzing various historical scenarios of major market dislocations and significant drawdowns. In these scenarios, the strategy would have consistently performed exceptionally well,” points out Houles. When combined with the continuous equity exposure from futures, Tidan Global Equity Enhanced offers a compelling alternative for investors seeking equity beta exposure while safeguarding against significant downside risk in risk-off market environments.
