From: Michael Fowler To: Lesley Groff <1 Subject: ATorus - Daily Portfolio Report 2/6 Date: Fri, 07 Feb 2014 18:57:21 +0000 Attachments: Atorus_BacktestNAV_020614.pdf Lesley, Please see attached the Daily Portfolio Report for 2/6. Have a great weekend! Daily Commentary: "A Reminder About Security Selection & Position Sizing" Having displayed the "vol day" adjusted returns yesterday, I feel it worth reminding about security selection and position sizing. Specifically, the large winners, are not driven by out-sized position sizing (at inception) or a bias to small or mid cap securities becoming large cap securities. I've previously outlined our liquidity and market capitalization requirements in our Trading Assumptions document. Our position sizing, at inception, yields equal potential profit irrespective of notional dollars at risk. Stated another way we eliminate the volatility "basis" risk between any positions, so that the denominators are all indexed to the same potential impact to NAV. We then add to winners and never to losers. At the end of the day, our assumption (yes, it is an assumption) is that the distribution of returns, IN VOL DAYS and over a given interval of time, follows a Pareto-like distribution. By "indexing" our position sizing (e.g. Kelly Criterion like) to vol, we are always "in" the positions that represent the majority of returns and scale those returns by adding to them, without dollar cost avenging into losers. In essence, would you think the results are more stable of someone who made 50% in a year even with a high Sharpe, wherein the sample size was (i) small in the number of positions and factors; (ii) profit factor driven by a small subset of the total trades, and (iii) driven by excess position sizing; or someone who made 15% in a year, wherein the sample size was (i) large; (ii) profit factor driven by top 25% of positions that do not repeat; and (iii) position sized equally? While the former is possible, the odds