Sometimes a simple strategy can be the best strategy. At least that’s what Robert Kessler and Eric Hickman believe for Kessler Investment Advisors’ Cornerstone Absolute Return strategy. Confining themselves to the U.S. Treasury complex gives them something else — clarity.
“We really don’t have a problem telling people what we do,” Kessler says, adding that is not the norm in the space.
At its most basic level, Cornerstone takes Kessler’s more than 35 years of market experience and macro-level understandings and pairs it with Hickman’s mathematical background. The result is a systematic trading strategy that uses the Treasury complex to express an opinion on the larger economy. In their own words, “The strategy takes positions based on the investment managers’ systematically translated understanding of how macro and technical indicators predict movements in interest rates, both from an empirical and logical perspective.”
Kessler started trading in the equities business in 1967 when he was 25 years old. He did very well in the beginning, and then the markets humbled him. “If you’re lucky enough to be reasonably good at something, you end up thinking you’re not only good, but great. Then a couple of years later you learn the truth and lose a whole lot of money,” Kessler says.
He shifted his focus to Treasuries and in 1986 founded the Denver-based Kessler & Company Investments, Inc., a broker-dealer. He launched the advisory firm in 1994.
Hickman joined Kessler straight out of school after graduating from the University of Colorado with a degree in mathematics in 2001. Although he was hired initially to handle the firm’s information technology needs, he quickly found himself doing analysis and was tapped to build an index using leveraged Treasuries.
That index culminated in a long-only Treasury product that was sold to Goldman Sachs. The fund focused on buying the short end of the yield curve with some leverage to take advantage of the Federal Reserve lowering rates. Once the Fed funds rate was frozen at zero, it basically was the end of the trade and the fund.