About DRAKON Yield Curve Strategy

Summary:
Program is strictly systematic even to where new trades are initiated and stops are automatically employed to risk 0.166% of AUM per trade and no more than 1.1% per day. Stop-loss levels are dynamic and will move to attempt to capture at least 80% of a trend move.
Trade signals are initiated when a particular curve strategy breaches a buy or sell breakout signal. Up to 6 different yield curve strategies may be employed at one time. The system is designed to avoid extreme volatility and trading levels. For example, I asked him what the system is doing right now with the 2-10 yr curve at record levels: not trading that particular spread. The statement we have been given to examine demonstrates the trading of only a 10-30 spread.
There are no liquidity issues as the products traded are sufficiently liquid to ensure execution: US 2, 5, 10, and 30 yr futures and EU Bobl and Bund. Any combination of these products can be used at one time.
Average trade is 3-5 weeks and currently trades at a rate of 200 R/T per month per million (2400/yr).
Minimum account size is currently set at $500K, fees are 2X25, and the strategy employs a high water mark, which currently has not been under water for more than 2 months.
Average margin usage is 3.7% and should not exceed 6%. Recommended funding is 10% of trading line.

From their Due Diligence Doc:
Are there liquidity, regulatory or other requirements for the inclusion of markets in the firm’s portfolios?
No, as The Fixed Income Market is the most liquid market in the world and such issues have not come into play at all as the possibilities are to execute on either the Future Markets – on the various exchanges or on the Cash Market

For each program, what would a $1million portfolio look like? (Which markets would be included and how many contracts of each market would be included?)
It would have a spread on between the yield curve of the 30 Yr. T.Bonds and the 10 Yr. T.Notes or the 5 Yr. T.Notes , or the 10 10 T.Notes V the 5 Year T.Notes. Or, it could have a spread between
the Bunds V the Bobl, which ever has the lowest VaR (value at Risk).

What are the firm’s rate or return, volatility, and Sharpe Ratio objectives?
Rate of Return: 12%-15% PA
Volatility: On an annualized basis to be between 4.% – 6%,
Sharpe Ratio: Over 1.5
Could the unavailability of any of the firm’s principals influence the trading methodology?
No – the program is technical and is developed to the point where any one of our trained managers could execute the system properly.

This report does not take into account the investment objectives, financial situation, or particular needs of any particular person. Investing in securities and other financial products entails certain risks, including the possible loss of the entire principal amount invested. Certain investments in particular, including those involving structured products, futures, options, and other derivatives, are complex, may entail substantial risk, and are not suitable for all investors. The price and value of, and income produced by, securities and other financial products may fluctuate and may be adversely impacted by exchange rates, interest rates, or other factors. Prior to effecting any transaction in options or options-related products, investors should read and understand the current Options Clearing Corporation Disclosure Document, a copy of which may be obtained on request from your Managed Capital Advisory Group, Ltd. representative. Certain securities may not be registered with, or subject to the reporting requirements of, the US Securities and Exchange Commission or any comparable regulatory authority. Information available on such securities may be limited. Investors should obtain advice from their own tax, financial, legal, and other advisors and only make investment decisions on the basis of the investor’s own objectives, experience, and resources.