MultiStrat Program

Commodity Trading Advisor (CTA)
NFA ID # 481949
Last Updated: April 7th, 2021

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Manager Profile

Stephen Beers

Steve is a Trading Principal of Pawberry LLC and became registered as an associated person of Pawberry LLC on September 2, 2015. He has been an independent, proprietary trader in equities and derivatives for almost fifteen years. After graduating from Duke University with a Bachelor of Science in Civil and Environmental Engineering in 1997, Steve joined Susquehanna International Group (“SIG”), a global investment, trading, and technology firm. Steve initially worked as an options assistant on the AMEX and later traded as a market maker on SIG’s Nasdaq desk. After leaving SIG in 2004, he went on to develop his own trading models, trained other traders, and launched his own proprietary equity trading firm in 2006. Steve has traded futures on a proprietary basis since 2012. After developing different trading programs and successfully trading them, he launched Pawberry LLC.

Profile

The MultiStrat Program (“MultiStrat”) is a diversified portfolio of automated strategies trading the S&P and Vix futures contracts, ES and Vx. The program is designed to produce equity like returns without being bull market dependent.  The portfolio is weighted toward momentum but is generally ambivalent to market direction.  The MultiStrat’s low correlation to the S&P provides diversification as an alternative investment.

The portfolio is made up of 3 groups of strategies.  The first two groups focus on momentum and mean reversion in the S&P futures.  The momentum component is comprised of separate automated S&P strategies.  The mean reversion portion is discretionary and scales out of existing momentum trades using option gamma data, volatility ratios and key technical levels in the ES, NQ and Vix markets.  The third group is comprised of automated strategies trading Vx based on its relationship with the Vix index.

Components of The MultiStrat Program

Reversion

Trades S&P E-Mini (ES), Discretionary Long and Short Positions
Drivers: Option Gamma Data, Key Technical Areas of ES, NQ and Vix markets
Used Primarily to Scale out of Momentum Trades

Trend

Trades S&P E-Mini (ES), Long and Short Positions
Order Flow Aggression and Market Breadth as Drivers

Risk Premium

Trades VX Futures, Long and Short Positions
Drivers: Risk Premium Pricing & Vol Term Structure

Strategy Development Process

1

Research

The foundation of all our strategy development is a proper research framework in which ideas and concepts are tested individually for both merit & significance. While a quantitative focus is taken, it is grounded by basic principles and market fundamentals establish high quality research where there is a quantifiable edge to be further tested.
2

Core and Layered Code Integration

As research is translated into code, strategies are developed in a layered and modular format to allow for easy modification and testing of various components and their contribution to the strategy development process. Code inputs are broken down into primary inputs (research driven) and secondary inputs (backtest driven).
3

Walk Forward Analysis

In order to test proper robustness, identify proper risk/reward expectations and sensitivities to market regime shifts, several forms of Ins vs. Out of Sample Testing are done. This includes various forms of walk forward analysis across differing cross sectional data sets along with various In vs. Out of Sample ratios
4

Drawdown and Tail Risk Analysis

While properly identifying and capturing a source of edge in the market place is paramount, it is only successful in the long run if proper risk parameters are established and identified ahead of time. Risks can generally be broken down into what has been observed through available data, and what is plausible but not present in the sample size. We believe that strategy risk is better mitigated by proper sizing and offsetting qualities with other strategies. This avoids the expectation that one strategy (or concept) can be capable of handling all market situations, which we found is generally not realistic.
5

Permutation Testing

Permutation testing is a cross sectional robustness test of inputs and their contribution to a system. In systematic strategies, this has been proven to be a better robustness test than standard Monte Carlo simulations. In system development, the process from research to strategy development can be susceptible to significant curve fitting so care is taken that the inputs to strategies do not represent the tail of possible outcomes and that each input is measured in a quantitative way to ensure that the median expectation of an input and its ranges are significant vs base case performance metrics.
6

Live Testing

As the final stage of testing, we deploy strategies live for a specified period of time before introducing client funds. This is primarily driven by trade frequency of a system. This process allows for identification of any bugs and post trade analysis to ensure back tested expectations are realistic.

Criteria For Portfolio Construction

Portfolio Leverage

Given the leveraged nature of futures, overall exposure will typically be 0 to 2 times the notional value of an account size (long or short) using a S&P Beta exposure model.  Trade sizes are typically reduced as volatility increases. Excess funds which are not being utilized are invested in short duration T-Bills which can be collateralized for further yield enhancement.

Affect of Individual Strategies on Portfolio Sharpe Ratio

Similar to standard portfolio optimization. A proper basket of strategies are capable of yielding a superior risk adjusted return when correlation is low.  This principal portfolio building process is used in systematic trading as well.

Strategy Correlations Including Conditional Correlation Analysis

One pitfall of standard equity portfolios is the risk of conditional positive correlation when considering downside risk.  Systematic strategies are capable of having conditional negative correlation even while trading the same product which is a distinct advantage active management has over passively constructed portfolios.

Balance of Trend, Reversion and Risk Premium Dollar Exposure

We believe that these 3 macro level concepts encompass the mass majority of strategies regardless of style, mandate, or market.  It is very important to have proper exposure to these 3 concepts to ensure a robust and consistent performance.

Hypothetical Adverse Move and Correlation

Past performance is not necessarily indicative of future results. Actual correlation may differ from back tested results. The correlations listed above are derived from back tested (hypothetical) strategy P&L data from the period Apr.’04-Apr.’18.

Correlation HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

Operations

Order Execution and Clearing

  • All execution & clearing is done through Tradestation.  Trades can be given up to 3rd party FCM’s in the event an account is held at another location.
  • Individual accounts are set up as SMA’s (Seperately Managed Accounts) structure
  • Block Accounts are used for daily execution of strategies and trades are allocation proportionally using average pricing

Accounting and Regulatory

Pawberry LLC is a regulated by the NFA and outsources all accounting and regulatory questions to Michael Coglianese CPA, P.C.

Security

Pawberry has no servers and all sensitive data is stored locally on each computer (requiring 2 Factor Authenification to access). Files are additionally encrypted and then backed up to a cloud service for redundancy and additional security in the event of any data breach at 3rd party vendors.

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Client Account Performance

The risk of loss in commodities is substantial. Past performance is not necessarily indicative of future results. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.

The performance represents the composite of Client Accounts that began trading the Combined Program(Blue) in August '16 and switched into the MultiStrat Program (Dark Blue) in June '17. All Clients who traded the Combined Program through May '17 switched into the MultiStrat in June '17. Monthly performance is net of a 1% per annum monthly management fee and a 20% quarterly incentive fee. The Combined Program was Pawberry’s predecessor to the MultiStrat, which only included the ST Trend and Reversion strategies.

Max Drawdown: -14.57% during Aug'18-Nov'18.

CTA Index Source: https://cib.societegenerale.com/en/sg-prime-services-indices/ The SG CTA Index is a non-investable index that tracks the largest (by AUM) twenty CTA’s. It does not reflect the performance of the managed futures space as a whole, nor the performance of a particular trading advisor.

Proprietary Performance

The risk of loss in commodities is substantial. Past performance is not necessarily indicative of future results. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.

The performance represents the composite of proprietary accounts which began trading the Combined Program in June '14 (Blue) and switched into the MultiStrat Program (Dark Blue) in July '16. This timeline is how Principal Steve Beers actually traded his account. Monthly performance is net of a 1% per annum monthly management fee and a 20% quarterly incentive fee. The Combined Program was Pawberry’s predecessor to the MultiStrat which only included the ST Trend and Reversion strategies.

Max Drawdown -14.05% during Aug.'18-Nov '18.

CTA Index Source: https://cib.societegenerale.com/en/sg-prime-services-indices/ The SG CTA Index is a non-investable index that tracks the largest (by AUM) twenty CTA’s. It does not reflect the performance of the managed futures space as a whole, nor the performance of a particular trading advisor.

Why Invest in MultiStrat

  • Volatility Driven Trading Strategies
  • Manager Alpha During Volatile Markets
  • Low Correlations to S&P 500 (29.01%) and Soc Gen CTA Index (21.07%) *
  • Diversified Strategies with Offsetting Risk Properties

The risk of loss in commodities is substantial. Past performance is not necessarily indicative of future results. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition.

1=Pawberry Combined Program traded during that period.

2=Pawberry MultiStrat traded during that period. NT=Not Traded that period.

* Correlations are based on monthly percentage returns of the MultiStrat Client performance through Nov. 2021