All fund activities are associated with various types of risks. All forms of investment funds are associated with risk in the sense that the deposited money may lose value. Higher risk can likewise lead to the possibility for higher returns. In evaluating the fund and decision to invest, the risks associated with the fund must be carefully considered. Presented here, is an overview of the different types of risks that mainly arise when investing in the fund. The list does not claim to be comprehensive in terms of presenting the risks that may occur in the management of the funds.
The goal of the fund is to deliver a return that has low or no correlation with equity and bond markets. This implies that the fund may deliver lower returns than ordinary mutual funds in a time of rapidly rising stock markets or falling interest rates. The low correlation does not imply that the fund is certain to generate positive returns in periods when traditional funds deliver negative returns.
The risk level of the fund, as measured by the annualized standard deviation of the fund’s net asset value change, should over time range between 8 to 18 percent before fees. In the shorter term, however, the net asset value may exhibit both smaller and larger variations than what the long-term risk level indicates.
The trading algorithms that we use in the management of the fund are trained using historical price data. The algorithms are based on, among other things, the fact that most markets have produced some common patterns of price movements. There is, of course, a risk that market behavior changes and that the patterns that the algorithms rely on to generate forecasts may disappear or deteriorate. The models' ability to generate excess returns will, in such cases, decrease. In order to mitigate the impact of such a scenario, we continuously analyze and improve the trading algorithms. The algorithms use artificial intelligence to conduct its own analyses and forecasts to adapt to new market conditions.
The fund’s policy is to only invest in markets that are characterized by good liquidity. In extremely troubled market situations, however, liquidity may be lower than normal, and this may complicate settlement of one or more of the fund's investments.
Our goal for the fund is to deliver a high risk-adjusted return. From October 2012 (when the trading algorithms started to trade with real money on a test basis) until October 2015, the average annual return of has been about 47 percent (more information on this can be found on the page "Historical Return"). There are, of course, no guarantees that we will be able to achieve this investment goal in the future, and it cannot be excluded that future returns will be negative. Our goal is that an investment in the fund should provide a good performance over a longer period of time. In the shorter term, it is impossible to forecast the fund’s net asset value. It is entirely possible that the fund during some periods may demonstrate a decline in value in the range of 20 to 25 percent. It is also possible that the fund will experience periods of 6 to 12 months with zero returns. An investor should consider an investment in the fund as a long-term investment with an investment horizon of at least two years.
Aside from the risks related to market risk and liquidity risk, there also exist counterparty and credit risks, as well as operational risks. These risks can occur, for instance, if an issuer or counterparty were to default on their payments, dependence of clearing functions, custodians and other service providers. Risks related to our operating activities may concern the dependency on IT systems, procedures, or changes to legislation that would imply new conditions for our business.