Hope you are all safe and not too bored in this challenging year.
As new risk metrics affect all Darwins, I’m wondering if traders consider adjusting risk parameters on their underlying strategies.
For example, my Darwin WFB used to have a DD of 5% for a 30% return pa. This has always been the target so I could promote this expectancy to investors. To achieve this I used a 1.5x leverage on the underlying account compared to accounts elsewhere. Now with Risk 2.0 the Darwin’s return dropped to 23% with a 3% DD. So I can’t pitch investors with a 30% return if I use the Darwin as a live tracker.
My understanding is that investors’ trading size is now reduced. Anyhow, the general reduction in risk profile across the community may seem appealing, but the impact on providers can be perceived very differently. Previously higher risk/volatile strategies benefit from a perceived lower DD (a 14% DD/50% return strategy looks better than a 20% DD/80% risk-wise), conservative strategies are affected by perceived smaller returns (for investors, a drop in return from 30% to 20% is a bigger deal than a reduction in DD from 5% to 3%). Doesn’t this seem like a bail-out for riskier strategies? Providers are responsible for their own risk profiles, or bear the consequences. An overall reduction is like an intervention into natural selection.
So if I want to return to my Darwin’s previous risk profile of 5% DD/30% return, do I need to increase the leverage in my underlying trading? Anyone looking to change their underlying in the wake of the new metrics?