The investment style adopted, and the derivatives traded in the form of futures and forwards, do not involve discretionary fundamental analysis or security selection of single stocks or corporate bonds. Therefore, no screening is performed based on ESG factors, a practice that is predominantly focused on individual company-related assets like equities and credit. Common frameworks are usually unfit for screening asset classes such as currency forwards, interest rate derivatives, broad equity indices or commodity futures. Further, the instruments traded do not entail any legal ownership of the underlying assets and as such no voting rights can be exercised that would enable Lynx to be an active owner with influence on any company or other entity. With that said, the Lynx program is screened quarterly by the independent Brummer & Partners’ Risk and Sustainability teams. These teams collaborate with an external expert to identify direct holdings in companies involved in certain controversial activities linked to established ESG standards, such as the UN Global Compact framework and the OECD Guidelines for Multinational Enterprises. The screening process also covers companies directly involved in coal, or the development, production, maintenance or sale of weapons that are illegal or deemed particularly controversial because of the disproportionate harm they may cause. As expected, the derivative instruments traded by the Lynx program render this type of screening service to be less relevant.
Lynx is dependent upon the health of the financial markets as well as of the society in a wider perspective. Lynx manages quantitative strategies using a fully systematic investment process. Investments are made in exchange traded futures on equity indices, fixed income, commodities and currencies, as well as over-the-counter FX forwards. Lynx has a conservative market selection approach with a focus on the most liquid markets in order to minimize market impact and not disrupt or materially affect market prices. We aim to ensure that our positions and trade volumes are small in relation to the daily volumes in those respective markets and we have a dedicated team – Execution Research – that is responsible for the algorithms used in our trading process. Execution Research gathers data on each order, focusing on market liquidity and trade volumes, and reports to the Investment Committee with their findings.
In addition, to protect futures markets from excessive speculation especially in the commodity sector the U.S. Commodity Futures Trading Commission ("CFTC") has implemented limits on certain commodities to prevent “sudden fluctuations or unwarranted changes in the price of such commodity”. Lynx strictly adheres to these limits and applies complementary measures to avoid exceeding them. Physical delivery is not allowed. For investors who wish to exclude certain markets, we can offer our strategies via customized managed accounts. One of the fund vehicles managed by Lynx, Lynx Dynamic, ceased trading energy contracts at the end of 2019.
The Lynx Program does not utilise high frequency trading. The typical investment horizon of the fund spans from a few days to multiple months. Timeframes are important; the goal is the creation of sustainable, long-term investment returns not just short-term returns.
Furthermore, in light of our commitment to responsible investing and our aspiration to be early adopters, we acknowledge the emergence of equity index futures that incorporate ESG factors into their construction process. Lynx is monitoring this development and plans to assess these index futures for potential inclusion in our portfolios in 2020.
In addition to the sustainability activities associated with the investment process, Lynx Asset Management has developed policies and procedures which are applied on a company level. Among other things, Lynx works to reduce our environmental impact, and to take responsibility for how we conduct our business in terms of equal treatment of investors, alignment of interests, and the handling of conflicts of interest. The existence of such a policy framework alongside our investment policy is a prerequisite for achieving and maintaining sustainable global financial markets and for fulfilling our duties to our investors.
We acknowledge the importance of continuous learning and development in the area of sustainability and responsible investment. We will work to foster transparency about our activities relating to these matters and provide information and support to clients, employees, governing bodies and other organisations. By doing so, we hope to raise awareness, encourage investors to pay attention to wider contextual factors, including the stability and health of economic and environmental systems and the evolving values and expectations of the societies of which we are part of.