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Trend Following Wizards: Red June

July 19th, 2011 · 10 Comments · Trend Following, Trend Following Wizards

Another monthly results column full of red for the Wizards in June: the Summer did not start all “sunny” for the CTAs tracked in this report.

To keep with last month’s analogy, the yo-yo’s string seems to have now broken, with no bounce back up from last month’s negative results (after several months of strong up-down sequences). The monthly average return for June is -4.39%. The yo-yo is not yet “lying on the floor” (ok – I’ll stop with this metaphor…) but most YTD performance figures are now in the red, with only 4 Wizards holding onto a “black” YTD number, and several now in double-digit losses territory..

Below are the individual results for all the Waizards as of end June ’11:

Organisation / Fund Return YTD * AUM **
Abraham Trading1
Altis Partners2
Aspect Capital3
Beach Horizon4
Campbell & Company6
Chesapeake Capital7
Clarke Capital8
Drury Capital9
Dunn Capital10
Eckhardt Trading11
EMC Capital12
Hawksbill Capital13
Hyman Beck & Co.14
JWH & Co.15
Man AHL Diversified16
Mark J. Walsh & Co.17
Millburn Ridgefield18
Rabar Market Research19
Saxon Investment20
Sunrise Capital21
Tactical Investment Mgt23
Winton Capital25


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* YTD: Year-To-Date performance.
** AUM: Assets Under Management for the program reported here (not total firm AUM)
1. Abraham Trading was founded by Salem Abraham, after he was introduced to Managed Futures and Trend Following by Jerry Parker. He is considered as a “second-generation” Turtle. Program tracked: Diversified Program.
2. Altis Partners started trading in 2001 and now manage over a $1B with their Altis Global Futures Portfolio. The figures referenced in the performance table are not provided by Altis Partners and no reliance should be taken as to their accuracy, and as a consequence the figures may not be in accordance with any CFTC / NFA performance reporting requirements. Program tracked: Global Futures Portfolio – Composite
3. The four founders of Aspect (Eugene Lambert, Anthony Todd, Michael Adam and Martin Lueck) were significant members of one of the most succesful funds in managed futures – AHL (Adam, Harding and Lueck). Program tracked: Aspect Capital Diversified USD
4. Beach Horizon was created as a fully automated trend following subsidiary of Beach Capital Management, founded by David Beach. Two of the founders of Beach Horizon had early involvement in AHL. Program Tracked: Managed Account.
5. BlueTrend, from BlueCrest Capital, is one of the largest Trend Following funds – headed by Ms. Leda Braga. Program tracked: BlueTrend Fund Limited
6. Campbell & Company is one of the oldest Trend Following firms, operating for around 4 decades. Program tracked: Trend Following Portfolio
7. Chesapeake Capital was founded by Jerry Parker, a former Turtle. Program tracked: Diversified Program
8. Clarke Capital was founded by Michael Clarke in 1993. Program tracked: Millenium
9. Drury Capital, Inc., was founded in Illinois in 1992 by Mr. Bernard Drury. program tracked: Diversified Trend-Following
10. Dunn Capital was founded by Bill Dunn. Program tracked: World Monetary and Agriculture (WMA)
11. Eckhardt Trading is the firm managed by William Eckhardt, who co-led the Turtle experiment with Richard Dennis. Program tracked: Standard Program
12. EMC Capital was founded by Liz Cheval, a former Turtle. Program tracked: EMC Classic Program
13. Hawksbill Capital was founded by Tom Shanks, a former Turtle. Program tracked: Global Diversified Program
14. Hyman Beck & Co. main principals are Alexander Hyman and Carl Beck. Program tracked: Global Portfolio
15. JWH & Co. was founded by John W. Henry, now also owner of the Boston Red Sox. program tracked: Financial & Metals Portfolio
16. Originally ED & F Man. Became a succesful CTA under Larry Hite and went on to form part of The Man Group plc, which subsequently bought AHL to form the Man AHL: the systematic trading division of the Man group. Program tracked: Man AHL Diversified Futures Ltd
17. Mark J. Walsh was not an official Turtle but trained and worked closely with Richard Dennis before starting his own fund management business. Program tracked: Standard Program
18. Millburn Ridgefield have been trading Trend Following models since the early 1970’s. Program tracked: Diversified Program
19. Rabar Market Research is the company of Paul Rabar, a former Turtle. Program tracked: Diversified Program
20. Saxon Investment was founded by Howard Seidler, a former Turtle. Program tracked: Diversified Program
21. Sunrise Capital is a CTA based in San Diego, with Martin Ehrlich as Principal. Program tracked: Expanded Diversified Program
21. Superfund founder and CEO: Christian Baha. Program tracked: Superfund Q-AG
23. Tactical Investment Management was founded by David Druz, student of Ed Seykota. Program tracked: Institutional Commodity Program
24. Transtrend is a Trend follower CTA based in Netherlands. Program tracked: DTP – Enhanced Risk (USD)
25. Winton Capital is a London-based CTA founded by Dave Harding (also co-founder of AHL). Program tracked: Diversified Programme
Note that the figures referenced in the performance table are not provided directly by any of the funds/CTAs featured in this report, but are sourced from other publications such as hedge fund/CTA websites.

These are top of the range CTAs/Managed Futures funds in the Trend Following space.
Most of the traders behind these funds have been involved in the Turtle Trading experiment (2 excellent books on this topic: Complete Turtle Trader – featuring the actual turtle rules and The Way of the Turtle), featured in the legendary books by Jack Schwager: Market Wizards and New Market Wizards, or in Michael Covel’s dedicated Trend Following book.

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10 Comments so far ↓

  • Fred

    The IASG CTA Index was down 3.5% and the Newedge CTA Index was down 1.69%.

    Jez, is it fair to say that the funds that have attracted the most capital are the ones with the least volatile returns?

  • Jez Liberty

    Fred – I have not done a full analysis of this but I think your point makes sense and seems correct from an empirical point of view (actually if I remember correctly Mike Covel made the remark that the Turtles “dialled down” the leverage (and volatility) to attract clients.

    I think there are two interconnected sides to a CTA operation: trading and business. A trader might be more tempted to “gun” for bigger profits, but this might deter potential investors. A businessman would, on the other hand, analyze the “requirements” from their potential clients and design a trading program with this in mind, with potential compromises to make with regards to an “pure trading” point of view.

    I remember an interview from David Harding, post-2008, where he was saying that investors would probably be happy at that time with something less volatile and about 8% returns, and this is what he was going to try and provide through his program. Maybe not exciting as a “trader” but probably effective from a business point of view (and he seems to have gotten it right since he started Winton, now one of the largest CTAs…)

  • Jez Liberty

    … although pure volatility should not be (and is most likely not) the only criteria. A return vs volatility metrics is more adapted as you can simply dial the leverage back up (as an investor) if you wish with notional funding.
    I did run a post on “measuring CTA performance relatively” a while ago (with geometric information ratio) and Winton did also very well on this measure:

  • Fred

    I believe Abraham dialled down leverage recently as well and, no doubt, to appease investors.

    Personally, I consider the MAR ratio when reviewing my own trading performance.

  • JRV

    These trend followers don’t really manage all that much money at all. Compared to institutions the total AUM’s are a drop in the bucket. 21Mil for JWH? That’s so tiny it doesn’t matter at all. Winton Capital seems to be the only decent-sized player and even then they aren’t that big in the world of institutional investment managers. I wonder why they aren’t attracting more AUM if they are considered to be so good. Has to be a reason somewhere.

  • Jez Liberty

    @JRV: you’re right… It seems that even within the alternative investment category, CTAs/Trend Followers are not “scoring big” in terms of AUM. My bet would be that Trend Following is not “glamour enough” to sell to all these institutions, with no great story behind the system strategy, and some relatively large drawdowns.

    Guys like LTCM and Madoff seems to be much more successful at attracting capital, but that does not mean they were any good! As with any business marketing is a key for success. You can have the best product, if you can’t sell, you won’t sell…

    ps: John Henry manages more than $21M in other programmes, I just picked his historic one and I only report the programme AUM vs firm AUM. Maybe mis-leading I agree.

  • Fred

    @JRV I don’t work in the field but it is my understanding that the asset allocators aren’t fond of TF funds. The allocators have to cover their ass in the event of a drawdown and it is much easier to sell a story about having allocated funds to a manager who has an ivy league education, worked with a perceived leading global financial institution for 15 years before striking out on his own, etc. Far too many investors want to believe in the story about a fund manager’s skills. Think about all the folks who bought shares in Berkshire Hathaway so they could tell their friends that their money is with Warren Buffett.

  • Ryan

    JRV, totally wrong. John Henry is a bad example…

    Winton is up to 23 billion, AHL is around the same, Bluecrest’s BlueTrend closed @ 12 billion, Transtrend @ 8 billion…. etc. A number of other managers are in the 1-5 billion range.

    How big do you want? They already account for a large portion of open interest in many markets. Remember they only trade futures, not other asset classes like most asset managers.

    Industry is validated… perhaps overly so now as the number of retail products suggest.

  • Jez Liberty

    There is definitely a substantial AUM difference between CTAs and other “investment managers”, but after all, CTAs are part of the “alternative investment” category and as such I do not think that they will ever come close to the levels or more traditional ones like BlackRock and their trillions of $ in institutional AUM (but as Ryan pointed out, they do not deal in the same instruments). Even if capacity was not an issue, I do not believe any pension fund or other large institution would make Trend Following funds the core holding of their portfolio (too different from the herd, more volatile, etc.).

    At a more global level, but within the alternative investment space, CTAs’AUM represent roughly 1/6 of that of hedge funds’.
    “As of 1st Quarter 2011, total assets under management for the hedge fund industry was $1767.7 billion, and the managed futures (CTA) industry was $291.4 billion.” (source: BarclayHedge)
    with the biggest “hedgie” standing at around $100B, I believe (BridgeWater).

  • RB

    The asset base of the trend followers may have to do with the account size. These traders want acounts from $1m to $10million dollars. Someone like david druz has never cared about marketing and has only traded for a small number of clients. The people that run pension funds also do not understand how trendfollowers make their returns and are wary of putting money with someone that could be down 10% one month and up 15% the next.

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