Imagine competing in an online trading competition as a student, and winning a summer internship based on the results. That’s exactly what happened to two students, one from Queens University and another from the University of Pennsylvania, who won the Fortress Global Macro University Challenge.
Over the past six months, 1,250 students from 22 schools competed in an online trading competition at UpgradeCapital.com. Two students won internships at Fortress Investment Group and the top performers split $15,000. The competition wasn’t limited to just stocks, but it was open to ETFs and currencies as well.
I chatted with Alexey Loganchuk at Upgrade Capital about the competition and here is what he had to say:
Kai Petainen: What is Upgrade Capital’s role in the competition?
Alexey Loganchuk: The Fortress Challenge was hosted on Upgrade Capital’s proprietary trading and communications platform. By analyzing student performance and activity, Upgrade Capital has been able to decide which competition participants displayed sufficient dedication and promise to be granted access to Fortress portfolio managers and traders.
Petainen: How is the Fortress Challenge different from other online stock competitions?
Loganchuk: There are three major elements that make the Fortress Challenge unique:
The Fortress Challenge places great emphasis on education. It is the only cross-university trading competition run in direct and ongoing collaboration with the senior risk-takers at a leading investment firm. As the Challenge progresses, top performers are provided with ongoing guidance and mentorship by Fortress portfolio managers, traders, and quants. In short, students are offered an opportunity not only to prove themselves but also to become better investors.
The overwhelming majority of major cross-university competitions place a heavy emphasis on bottom-up analysis and stock picking. In this competition, Fortress challenges students to make sense of the bigger picture by encouraging them to engage in top-down analysis and to build macro-driven investment strategies.
The identities of top performers will be made known to firms other than Fortress. It makes little sense for each firm to have their own competition – both job applicants and employers benefit if all performance records and investment research are gathered in a single place and analyzed in a consistent manner.
Petainen: One common criticism about virtual online competitions, deals with how a competitor can win based on one 'lucky' stock pick. So it's hard to differentiate between a lucky pick vs. a skillful investor. Did you take this into consideration, and if so, how?
Loganchuk: We treat quantitative measures of performance as merely a starting point for assessing students. After sorting all competition participants on the basis of Risk Adjusted Alpha, a metric which strips systemic risk out from returns and factors in risk taken, we work with Fortress to go through individual competitors’ detailed trading records and trade commentary for the top 50 performers. There is no substitute for a manual assessment by an experienced investor.
We also run multiple programs outside the trading competition to give students more ways to distinguish themselves. This year they included the Ben Graham Fellowship, a stock pitch competition run in partnership with the Value Investing Congress; the Fortress Fellowship, a macro trade pitch competition in which the winners gained ongoing access to Fortress portfolio managers; and the Quant Teams Program, where students were challenged to develop their own market tracking and risk analysis algorithms.
Petainen: When will you run the competition again? And how can students join up for the competition?
Loganchuk:The
Leaders of student investment groups from 17 universities met at Fortress in August 2013. Photo... [+]
One of the winners was Arun Narasimhan from Queens University. Queens University has a student managed Canadian equity fund that manages $700,000, and they recently received another $500,000 from Mackenzie Investments.
Kai Petainen: Can you talk a bit about your strategy?
Arun Narasimhan: I strive to capture macro trends. Being a student, the most challenging aspect of macro trading is staying on top of market developments. To filter market activity, I run a few models that fall into trend-following or factor model buckets. These signals are often used to guide my macro and sentiment research.
Petainen: What was your best trade?
Narasimhan: Shorting the Canadian dollar in mid-October comes to mind. For the first time ever, there was a strong confluence of agreement between all my models and macro fundamentals. Meanwhile, Canadian front-end rates were pricing in rate hikes in anticipation that the Bank of Canada would tighten ahead of the Fed.The Loonie subsequently fell 10% against the US dollar and it was the most profitable G10 major currency trade of the past two quarters.
Petainen: What was your worst trade?
Narasimhan: [I bought the] USDTRY just hours ahead of the interest rate decision in January. Locked between a large current account deficit, eroding central bank reserves, a political crisis and a broad emerging markets sell-off, I thought a rate hike would not be enough to stop the lira's depreciation. The benchmark rate was then raised by 550 basis points to 10% - the lira soared.
I changed course by using the South African rand to fund a long position in the lira, which helped recover some of the prior losses. The experience taught me to resist the temptation to trade ahead of key economic numbers & monetary policy decisions in markets where the local central banks have no qualms attempting to defy economic gravity.
Petainen: Any other thoughts?
Narasimhan: As a markets junkie, I benefited tremendously from the feedback provided by the portfolio managers at Fortress. Not only has the past academic year marked an increase in my macro awareness, but it has also altered the way I think about markets as I now spend most of my time formulating a viable variant view. Alexey Loganchuk has sparked a revolution in the forward looking hedge fund industry whereby precise skill evaluation is starting to take precedence over anecdotal factors. I couldn't be more grateful for the opportunity to be part of this paradigm shift.
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Kai Petainen's views on the market and stocks are his alone, and do not reflect the views of the Ross School of Business or the University of Michigan. Kai teaches a class on quant screening, F334 -- Applied Quant/Value Portfolio Management, at the Ross School of Business.
