The Programme is based on a multi-phase long-term trend-following system and is completely mechanical and broadly diversified. Sector weightings are determined using a proprietary orthogonal decomposition algorithm. The Programme seeks to profit from the long-term volatility manifested in major price dislocations, but insulate the equity curve from the impact of short-term volatility. Position liquidations are triggered by statistically significant adverse price action and never at pre-determined objectives. This strategy allows the system to participate in multi-year trends, generating commensurate profits. The system engages in options strategies to protect unrealized profits and reduce portfolio volatility.
Mulvaney Capital principals include: Paul Mulvaney.
Reading the Disclosure: What It Describes
Mulvaney Capital’s disclosure is one of the most technically precise in the CTA industry. Each sentence describes a specific design choice and its purpose. The disclosure rewards close reading.
“Completely mechanical and broadly diversified” establishes the foundational commitments: no discretionary overrides, and exposure spread across a large number of uncorrelated markets. These are the same commitments at the core of the TurtleTrader rules. A mechanical system removes the psychological failure modes that destroy discretionary traders. Broad diversification reduces the impact of any single market behaving abnormally.
“Sector weightings are determined using a proprietary orthogonal decomposition algorithm.” Orthogonal decomposition in this context means that the algorithm identifies components of portfolio exposure that are statistically independent of each other, then weights the sectors to maximise the portfolio’s exposure to uncorrelated sources of return. Two markets that appear to be in different sectors can still be correlated during specific macro regimes. Orthogonal decomposition addresses that problem by working from the actual statistical relationships in the data rather than from nominal sector labels.
“Position liquidations are triggered by statistically significant adverse price action and never at pre-determined objectives.” This is one of the most important sentences in the disclosure. It means that Mulvaney does not use fixed profit targets. Positions are held until the price action signals that the trend has reversed in a statistically meaningful way. This allows the system to stay in multi-year trends for their full duration rather than exiting when an arbitrary target is reached. The cost is that some gains will be given back before the exit signal triggers. The benefit is that the system does not cap its participation in the largest and longest moves.
Multi-Year Trends and the Options Overlay
The emphasis on multi-year trends puts Mulvaney at the long-duration end of the trend following spectrum. Most systematic trend following programmes operate on time horizons of weeks to months. Mulvaney’s disclosure describes participation in multi-year trends, which is a much longer holding period and requires a correspondingly higher tolerance for drawdowns within the trend.
The use of options strategies to protect unrealized profits and reduce portfolio volatility is a structural addition that most trend following CTAs do not employ. When a position has accumulated a large unrealized gain, an options position can protect that gain against sudden reversal while keeping the underlying position open to continue participating in the trend. This is a form of asymmetric risk management: it limits the downside to the unrealized gain while leaving the upside of continued trend participation open.
The combination of long-duration trend following with an options overlay to protect gains is a more complex architecture than the straightforward mechanical system that Richard Dennis taught the Turtles. But the underlying goal is the same: capture the full magnitude of major directional moves while controlling the size of losses on trades that fail to develop.
Paul Mulvaney and Mulvaney Capital
Paul Mulvaney is the sole principal of Mulvaney Capital Management. The firm’s architecture reflects a single practitioner’s decades of work on systematic trend following, building on the foundational approach while adding the orthogonal decomposition sector weighting and the options overlay for profit protection. Mulvaney has built a system that is fully his own in its technical implementation while staying in the same intellectual tradition as the broader trend following world.
The performance profile of a system designed for multi-year trends will look unusual compared to shorter-term trend followers. Flat or negative periods will be longer. Winning periods will be fewer but larger. The equity curve will be more volatile. Those characteristics are the trade-off for participation in the very largest price dislocations that the system is designed to capture.
Frequently Asked Questions About Mulvaney Capital
What is Mulvaney Capital Management?
Mulvaney Capital Management is a systematic trend following CTA run by Paul Mulvaney. Its Programme is a multi-phase, completely mechanical, broadly diversified long-term trend following system. Sector weightings are determined by a proprietary orthogonal decomposition algorithm. The system targets multi-year price dislocations and uses options strategies to protect unrealized profits.
What is orthogonal decomposition in portfolio construction?
Orthogonal decomposition identifies statistically independent components of portfolio exposure. In sector weighting, it finds combinations of markets whose returns are uncorrelated at a statistical level, regardless of their nominal sector labels. This produces a portfolio that is more diversified in practice than one built using conventional sector categories, because it works from actual return correlations rather than from assumed ones.
Why does Mulvaney never use pre-determined profit objectives?
Because fixed profit targets would cap the system’s participation in multi-year trends at an arbitrary point. The system is designed to hold positions until statistically significant adverse price action signals a reversal. This allows it to stay in trends for their full duration, which is where the largest gains come from. The trade-off is that some unrealized gains will be given back before the exit signal triggers.
How does the options overlay work?
When a position has accumulated a large unrealized gain, options positions can protect that gain against sudden reversal while keeping the underlying position open. This is an asymmetric risk management tool: it limits the downside to the unrealized gain while preserving upside participation if the trend continues. The approach adds complexity to the portfolio but reduces the equity curve volatility that comes from large drawdowns in positions that were profitable before reversal.
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