3. FINANCIAL
Management
ence Meet the Market
Founded in 2008, GenFund Management (GFM) is an
investment management firm that delivers superior risk-
adjusted performance using proprietary, computer-based
statistical algorithms and models. Noah Solomon, CEO
and CIO, and Scott Miller, Managing Director, spoke with
The Canadian Business Journal about the firm’s unique
methodology and why it has proven successful.
4. FINANCIAL » Genfund Management
4
GFM Investment Funds
GenFund Management offers a range of invest-
ment funds, including the GFM 130/30 Fund, the
GFM Market Neutral Fund, and the GFM Dividend
Income Fund. The objective of the GFM 130/30
and GFM Dividend Income Funds is to produce
returns that are at least 30 per cent greater than
the TSX Total Return Index, without any added
volatility. This means that investors can receive
considerably higher returns without taking on
any incremental risk.
The GFM Market Neutral Fund aims to
achieve returns of six to eight per cent per year
with half the volatility of, and with no significant
correlation to, the TSX Total Return Index (i.e.,
regardless of whether the TSX rises or declines).
Unique Investment
Philosophy
Prior to launching GenFund Management,
Solomon gained a wealth of investment experi-
ence with some of the largest global players in
the financial industry, including Goldman Sachs.
During his experience, Solomon applied statis-
tical algorithms to vast quantities of historical
fundamental data (valuation, profitability, etc.) for
the purpose of identifying which characteristics
of companies tend to be the most predictive in
terms of forecasting relative returns.
GFM’s process is unabashedly systematic.
There are no emotions involved in security
selection or portfolio construction decisions.
GFM’s proprietary models bring scientific
discipline and mathematical rigour to what is
an emotionally charged and chaotic invest-
ment process for most investors. Rather than
fall victim to his own emotions, Solomon uses
mathematical discipline to exploit opportunities.
GFM’s algorithms analyze approximately
150 data points for roughly 200 companies in
each quarter going back about 20 years. These
data points are income and balance sheet
items (i.e. cash flow, debt, accruals, margins,
etc.). The algorithms then ascertain which vari-
ables tend to possess the strongest and most
stable power in terms of their abilities to fore-
cast relative returns. Once the most predictive
60 factors have been identified, then a proprie-
tary optimization technique is applied to assign
them relative degrees of importance (how
much weight each factor is assigned within the
overall decision-making process).
Conservative Portfolio
Structure
Each quarter, GFM’s proprietary models take
the 200 most liquid TSX stocks and rank them
from the most to the least attractive based
on the aforementioned 60 variables. The top
ranked stocks are purchased and the bottom
ranked stocks are sold “short”. Typically, both
long and short portfolios are each invested in
80 equally weighted positions (each stock is
only 1.25 per cent of total exposure in each of
the long and short portfolios).
5. 5DECEMBER 2013 « The Canadian Business Journal
focus
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GenFund Management
Not Stock Pickers:
GenFund Aims to Create
the “Super Stock”
“We are not stock pickers in the classic sense,”
Solomon detailed. “We are what I like to
describe as portfolio engineers – more impor-
tant than any single company is how each
company fits in with the other companies in
the portfolio. No one company has a perfect
profile, but different companies have differ-
ent strengths. We mathematically engineer
portfolios of companies based on their ‘part
worths’ to create the ‘super stock’ in port-
folio form. In simple terms, GFM’s portfolios
are scientifically designed based on guiding
principles of maximizing exposure to those
variables that drive returns while simultane-
ously minimizing exposure to those variables
that cause volatility.” CBJ
www.genfund.com
6. AS SEEN IN THE DECEMBER 2013 ISSUE OF THE CANADIAN BUSINESS JOURNAL
GEORGE MEDIA
NETWORK
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