Paskewitz Asset Management (PAM) was created when its founder, Bradford Paskewitz, decided to do something more challenging with his skills in artificial intelligence and statistics, so he designed a program to capture tops and bottoms in the E-mini S&P 500.
He defines what his Stock Index Trading Program does as short-term value investing, and it has resulted in a series of positive years — each year higher than the last — for his program since inception in December 2003.
He has an electrical engineering and computer science degree from Princeton University and a masters in systems engineering from the University of Pennsylvania. In 1987, after working on radar signal processing for missiles at General Electric and being head of an artificial heart project for a medical device company, Paskewitz made the switch to finance, working on product development, where his engineering and quantitative skills were still key requirements. In some ways Paskewitz found finance more difficult. “When you’re analyzing physics data, a lot of the data is the same all the time, but when forecasting the markets, because they’re always changing and evolving and have a lot of characteristics, that makes them hard to forecast. It’s also a very highly competitive field and that makes it more interesting,” he says.
After 15 years of researching and developing equity futures trading strategies for brokerage firms including Lehman Brothers and Credit Suisse, he went out on his own and founded PAM. He says he’s been able to be successful by concentrating in the S&P 500 E-mini, one of the most liquid futures markets in the world and a market that’s good for countertrend trading. His models are negatively correlated to trend-following programs and thrive at forecasting tops and bottoms. He adds that trading the E-mini S&P also allows more precise scaling of different types of accounts without much slippage. Also, he uses advanced statistical techniques for in and out-of-sample testing, and the out-of-sample and actual performance is consistent with his simulation period.
“Trend followers are looking for market moves and they assume the market is going to keep moving in the same direction, but 80% to 90% of the time the market actually reverses after making a move, and that’s not a good strategy,” Paskewitz says, adding that many trend following commodity trading advisors (CTA) are profitable at the end of the year because of one or two really good months, while his program has mostly positive months, with only two to three down months per year. The Edison, New Jersey-based CTA returned 36.48% in 2006, a tough year for most futures managers, putting it in the top 1% of the CTAs being tracked by Barclay’s. In 2005 the program returned 15.94%, and in 2004 returns were 13.22%.
“I go against the conventional trend-following methodology,” Paskewitz says. “I have developed some models that are very good at forecasting short-term and intermediate-term tops and bottoms in the S&P 500. So if the market appears to be at a top, instead of buying like a trend follower would, I’m actually going to sell. And if my models identify what looks like a bottom in the market, I’m going to buy,” he says.
His completely systematic program is a multi-strategy program that runs all three strategies, and each strategy is based off the same program with minor differences.
Each strategy looks for specific quantitative patterns in the price and volume of the market to signal market tops and bottoms. When they detect a top they sell and when they detect a bottom they buy. His program keeps him in trades from as little as one day to up to one week.
What makes the strategies different is that the patterns each is looking for are different. “So there’s pattern diversification between them and there are also time frame differences. They only all agree on 3% to 5% of trading days, so they provide disagreement, which shows diversification, and our exposure is lower,” he says.
Paskewitz points out that any one strategy at any time can fail, and you never know when that will be. “If it does fail you can be out of business pretty quickly. With three strategies you increase your chances of being successful just by the principle of diversification,” he says.
Since 2003 Paskewitz has also been CEO of Qualsolutions Inc., and later Quant Financial Consulting Inc. (QFC), which has teams located in Beijing and Zhengzhou China, and provides R&D and technical consulting services to PAM and outside clients.
“It’s my unique background that led to the creation of this successful program and investors also find it interesting, and with that I will continue to grow PAM,” Paskewitz says.