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Trend Following Wizards – October

November 17th, 2011 · 22 Comments · Trend Following, Trend Following Wizards

A strong negative return for the month, taking the average YTD return further in the red – with a few funds now in negative double-digit territory.

Not a good October for the Trend Following Wizards.

The old adage “Sell in May and go away [, stay away till St. Leger Day]” rings true for Trend Followers this year. Since the month of May, five out of the last six have been losing months.

We are now past Halloween (and St Leger Stakes) — does this mean that the next 6 months will provide nice trending markets for the Wizards? Only time will tell.

Please find the results as of end October 2011 below:

Organisation / Fund Return YTD * AUM **
Abraham Trading1
Acorn Global Inv.2
Altis Partners3
Aspect Capital4
Auspice Capital5
Beach Horizon6
Campbell & Company8
Chesapeake Capital9
Clarke Capital10
Drury Capital11
Dunn Capital12
Eckhardt Trading13
EMC Capital14
Hawksbill Capital15
Hyman Beck & Co.16
JWH & Co.17
Man AHL Diversified18
Mark J. Walsh & Co.19
Millburn Ridgefield20
Rabar Market Research21
Saxon Investment22
Sunrise Capital23
Tactical Investment Mgt25
Winton Capital27


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* YTD: Year-To-Date performance.
** AUM: Assets Under Management for the program reported here (not total firm AUM)
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 and databases.
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. Acorn are a Canadian-based CTA. Program tracked: Diversified Trust.
3. 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.
4. 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.
5. Auspice Capital are a Canada-based Trend Following CTA. Program tracked: Auspice Diversified Program.
6. 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.
7. BlueTrend, from BlueCrest Capital, is one of the largest Trend Following funds – headed by Ms. Leda Braga. Program tracked: BlueTrend Fund Limited.
8. Campbell & Company is one of the oldest Trend Following firms, operating for around 4 decades. Program tracked: Golbal Diversified Large.
9. Chesapeake Capital was founded by Jerry Parker, a former Turtle. Program tracked: Diversified Program.
10. Clarke Capital was founded by Michael Clarke in 1993. Program tracked: Millenium Program.
11. Drury Capital, Inc., was founded in Illinois in 1992 by Mr. Bernard Drury. program tracked: Diversified Trend-Following.
12. Dunn Capital was founded by Bill Dunn. Program tracked: World Monetary and Agriculture (WMA).
13. Eckhardt Trading is the firm managed by William Eckhardt, who co-led the Turtle experiment with Richard Dennis. Program tracked: Standard Program.
14. EMC Capital was founded by Liz Cheval, a former Turtle. Program tracked: EMC Classic Program.
15. Hawksbill Capital was founded by Tom Shanks, a former Turtle. Program tracked: Global Diversified Program.
16. Hyman Beck & Co. main principals are Alexander Hyman and Carl Beck. Program tracked: Global Portfolio.
17. JWH & Co. was founded by John W. Henry, now also owner of the Boston Red Sox. program tracked: Global Analytics.
18. 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.
19. 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.
20. Millburn Ridgefield have been trading Trend Following models since the early 1970’s. Program tracked: Diversified Program.
21. Rabar Market Research is the company of Paul Rabar, a former Turtle. Program tracked: Diversified Program.
22. Saxon Investment was founded by Howard Seidler, a former Turtle. Program tracked: Aggressive Diversified Program.
23. Sunrise Capital is a CTA based in San Diego, with Martin Ehrlich as Principal. Program tracked: Expanded Diversified Program
24. Superfund founder and CEO: Christian Baha. Program tracked: Superfund Q-AG.
25. Tactical Investment Management was founded by David Druz, student of Ed Seykota. Program tracked: Institutional Commodity Program.
26. Transtrend is a Trend follower CTA based in Netherlands. Program tracked: DTP – Enhanced Risk (USD).
27. Winton Capital is a London-based CTA founded by Dave Harding (also co-founder of AHL). Program tracked: Diversified Programme.

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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22 Comments so far ↓

  • RB

    Hi Jez Very ugly numbers for Oct. One of the trend following indexes , the Wisdom Tree managed futures strategy fund is down 8.41% thru the end of Oct. Tracking your wizard index. The volatility is whipping everyone.

  • Michael Harris

    Hi Jez,

    Thank you once more for the info. This is too sad for trend-following. I bet you were expecting this to happen given you experience with this style of trading. Some funds are down considerably and may experience massive redemptions. I also tried to warn trend-followers back in September when I wrote:

    “Choppiness may continue for several weeks giving more troubles to trend followers. I would turn off any automated trend following system at this point. There is no point in getting caught up in a fight of this kind. This is a good market only for experienced very short-term swing traders, scalpers and option sellers. Trend followers should take a break, in my opinion, until the technical picture is clarified.”

    I guess the idea that discipline pays in the longer term is under challenge at this point because uncertainty is lasting for too long for that to hold.

  • Wm.A

    “””I guess the idea that discipline pays in the longer term is under challenge at this point because uncertainty is lasting for too long for that to hold.”””

    I don’t believe you have a firm grasp of trend following Michael. Discipline and consistency with risk management are precisely what is needed at this point.
    About the time you stand aside is when things break out and you would have recouped all of your losses and gone into profit.

    The small amount of drawdown experienced by most of the trend followers at this point is negligible.

    Regards to all,

  • Michael Harris

    Hi William,

    Maybe I should have qualified better what I claimed but I was in a hurry.

    I meant discipline in following a non-performing system. However, I though the people in this blog will understand what I meant.

    But I don’t think you have a grasp of trading in general. Discipline and risk management are not an edge. Lack of them can certainly ruin a good system but they cannot turn a losing method into a winning one.

    “The small amount of drawdown experienced by most of the trend followers at this point is negligible.”

    I think you should have taken a better look at the stats Jez presented before you replying. Do you think that YTD losses of 29%, 19% or 23% are negligible? If you think so it is most probably because you are a small account retail trader. A drawdown of 20% on a one billion dollar fund amounts to 200 million dollars. That can cause fund closing. Furthermore, an average loss of 8% is not a small drawdown.

    Do you know that some funds have a clause for liquidation if NAV drops 25% or more high water mark? You were probably looking at the monthly losses only.

    FYI, I have been trend following markets since 1988. I finished third place and forth place winner in 1995 and 1996, respectively, for the yearly Robbins Cup in futures trading (real money lasting all year). This is the only blog I subscribe to and I post comments occassionaly. I do it because Jez is a truly quantitative guy and deserves to be the head of a GS department in this area.

    So before you accuse someone of negligence of a specific area of trading please make sure you know the person and refrain from you are acting on impulse for whatever purpose you only know.

  • Andrew

    well, if all TF’s are having bad DD’s, and if they’re being treated as an asset class by many allocators, then, no, i don’t see this as an ominous sign re: redemptions.

  • Wm.A

    I am sure you are quite an accomplished trader, and most likely much better than I. However
    my comments were not meant as a slight or insult but rather my perceptions are not the same as yours.

    As far as drawdowns are concerned I am sure you are familiar with Bill Dunn’s track record some of
    which can be seen here…

    Apparently drawdowns of over 25% don’t seem to bother Mr. Dunn.

    You are correct, I am a retail trader and have absolutely no desire to trade OPM, also
    I am relatively new to trading.

    I do however trade a trend following method that has worked pretty well for me this year. It is a very mechanical system and requires very little of my time, I trade the EUR/USD pretty much exclusively, yes I know about diversification and I choose to use several TF methods on this single pair as my method of diversification.

    You may see the equity curve here…..

    I guess the bottom line here is that market perception is an extremely individual thing and we all have to deal with the beast on our own terms.

    My highest regards to you and your success,

  • RB

    The obituary for trend following has been written many times in the past when they have been in drawdown only see them put up huge numbers and go to new equity highs. Robust systems have volatility and systems with little drawdown are used by the LTCM type. Bill Dunn had a 60% drawdown before recovering. The drawdowns that the wizards are having is not enough that they can’t comeback from, and I’am confident they will. Trend following like any method has it’s own form of tail risk.

  • Jake

    The biggest drawdown is always round the corner. Business as usual. Next..

  • Minion

    Drawdown time. Here is when you prepare to buy in………..

  • Jez Liberty

    oops – I just realised there were quite a few comments on this post by casually checking it… Somehow I did not get email notifications for the new comments.

    Anyway, are a couple of thoughts on the above:

    – As RB says, I believe Trend Following has gone through these trying times of poor performance before (2005/2006 comes to mind on top of my head) and the question “Is trend following dead?” resurfaces… But TF then seems to bounce back. I am not sure this is different this time (the old “History never repeats itself, but it often rhymes.” and all that…).

    – Regarding the discussion about discipline in following the system, I would lean towards the approach of “sticking to the system” regardless; otherwise it becomes a matter of subjective guessing and making an “untested” trading decision (i.e. when do I stop/start trading my system?). Some experiences traders might be able to make that call more or less accurately (are they really over the long term though?) but most system traders are attracted by the removal of subjectivity in trading decision.
    Additionally, there have been equally long periods of under-performance in the past (Dunn is indeed a good example: the DD during which MaxDD reached 60% also lasted more than 4 years I seem to recall).
    A combined approach that would sit better with me is to have “meta-rules” as to when to over/under-allocate to the system (or simply filters as I tested in previous posts) based on market conditions: instead of “making a call” on whether the markets are going to become “unfavourable” to TF systems. It these are formalised they can be back-tested also and just be part of the system to follow (i.e. the system would tell you to stay in the sidelines).

    But then trying to “guess” when the markets are going to turn around (even with formalised meta rules) might actually get you out and back in too late because of the lag in recognising the “regime change” (i.e. sit out the recovery after trading through most of the enduring times…).

    I believe this is one reason why it is important to test over long periods of time spanning several decades, in order to test over a large array of different market environments.

    – I agree that some of these DD numbers start to become substantial but I think “real” Trend Following fund clients (those with an understanding of how it works) will have a higher tolerance than other HF clients (although I might be wrong on this… I was talking to a very well established wizard on this list and he was explaining to me that no matter how long clients had been with them, most were still calling every month during bad times).
    At least, the fund managers most likely expect these tough times in the future and probably structure their funds to be able to cope with them (again the Dunn example of a MaxDD at 60%…). Finally, there are definitely different levels of volatility/risk targets for the fund managers in this list and you probably have to look at each fund within its performance/volatility context (ie David Druz’s fund will most likely always be significantly more down than BlueTrend during bad times for example). Maybe I should add a MaxDD figure (normalised by length of track record) or other DD/vol/perf stats to illustrate this “historical individual performance context”.


    PS: thanks for the compliment Mike! Not sure I would want to work for GS though ;-)

  • Jake

    I read this article on one of the forums which I think explains the issues very well. It´s written by a guy that promotes a modell called Mathematically Perfected Currency or Economy, and is also a respected trend follower.


    Debts keep on multiplying exponentially by interest. It´s like a bucket of water with a big f hole in it which is perpetually expanding, so long as we can borrow enough obfuscated money (water) back into circulation, to keep the bucket sufficiently full, that surviving industry can pay through the hole, and borrow further.

    The water is our circulation; and so it is the principal of our purported debts to a banking system which merely publishes further representations of our promissory obligations to each other. But under a purported banking system then, “water” isn’t just water (principal) ― it’s an unwarranted (and falsified) obligation to perpetually pay principal and interest out of the hole, to the purported banking system.

    Here is how the hole gets so big that we inevitably fail under terminal sums of falsified debt:

    If we circulated our promissory obligations without a purported banking system, the obligation would only be to pay and to retire principal from circulation ― and all our actual debts (which are actually only to each other) could be fulfilled.

    But because we allow a purported banking system to obfuscate these obligations into falsified obligations to pay principal and interest out the hole (from a bucket filled with only some of the remaining principal), and because we have to keep the bucket full to remain able to do so (because we have to sustain sufficient surviving industry), the principal which gushes out the hole must return to the bucket by borrowing the principal back again.

    Any fact we have to borrow so much principal back into the bucket as equal, new debt, therefore makes it impossible to pay down any prior sum of falsified debt.

    Yet on the other hand, because the interest which must return to the bucket is borrowed back as new debt; therefore the sum of debt perpetually increases by so much as periodic interest on an ever greater sum of debt.

    This is how and why the hole perpetually gets bigger: ever greater sums of principal and interest are falling through the hole, to return to the bucket in such a way as increases a related sum of debt ― even an inherently escalating rate of ever greater sum of periodic interest on an ever greater sum of falsified debt.

    At the same time, the capacity of surviving industry is finite: it can only service so much debt.

    Thus when the hole (soon) gets so big that more water is exiting than industry can further afford to return to the bucket by (compulsory) further borrowing, the level of water in the bucket begins to fall ― and less industry can be sustained by the remaining water… ever more of which water yet, is solely dedicated to servicing debt… as opposed to sustaining industry.

    Even less surviving industry (and even less possible surviving industry) therefore are required to maintain the falling level of the bucket.

    Thus in each subsequent period, the level in the bucket falls itself at an escalating rate, until very soon, nothing remains to sustain industry; and thus in a failure which is inherently terminal, no new industry either can afford to survive the falsified sum of debt which has been wrongly multiplied into the unwarranted possession of a purported banking system.

    It is a vicious circle. This worked for a long time because there was always some industry (internet/housing) able to loan a lot of new money (at interest) to maintain/re-inflate the vital money circulation. But there will always come a breaking point whereas a critical mass will have lost its credit worthiness and are not able to borrow further. Starts to shows its terminal face on the individual level, then peripheral banks, then governments…

    So, what we are witnessing now is a denial of these terminal ramifications by the very perpetrators, who only publish further representations of our promissory obligations; who deny every real creditor interest; who thus do not even have any actual, legitimate property at stake which might (falsely) be argued to justify interest; and whose imposition of interest therefore is inevitably terminal.

    QE therefore is itself a proof of this inevitable failure, for the obfuscation of the purported banking system has only forced the purported banking system to pour the water back into the bucket which is impossible for the un-assenting subject to pour back into the bucket.

    No advantage or possibility of saving the system yet exists, because all QE accomplishes is to artificially extend the lifespan of a terminal system some while ― only so long as it is possible for failed and failing industry to absorb new water by production which has been made impossible by the old water.

    Being at that critical terminal point now the changes from deflationary to sustaining the level or inflation (or the expectation thereof) are causing ever more rapid changes in market direction (increased frequency).

    You can draw your own conclusions to what this means for systematic trend following.

  • Investment Warrior

    There is no way around it. You must expect a drawdown of about twice your expected annual rate of return about once every 5 years or so.

    If you are using leverage and expecting a 17% annual return using trend following, then you WILL have a drawdown in the neighborhood of 35% on average about once every 5 years. This is the nature of the beast.

    This has been my personal results for some 30 years, using trend following, and is supported by further backtesting to 1942.

    The -8.07% ytd drawdown is negligible for the composite of the managers and is quite within the expected standard deviation that one should expect.

    I am a professional money manager exclusively using trend following for client funds.

  • Kim

    If you want to get really technical, drawdown is not a measure of the profitability of Trendfollowing. A system can have an unchanged expectancy and yet experience larger drawdowns than ever before. Maybe diversification is dead (for now). Market selection tends to be much more important than entry and exit points.

  • Alex

    Trend following strategies are one of the few proven trading methods out there. Drawdown is part and parcel of it.

    I am a member of a group of interesting stock traders called Stockbee. Some of them developed trend-following stock market timing systems based on market breadth data. One of them publish the system in a blog.

    it was not purely the trend following system, but it seems to work very well even in this very volatile market.

  • Praetorian

    I have spoken with several CTAs and Brokers, they have told me that this is probably the worst kind of markets they have seen for Trend Following and I cannot actually come up with a worse scenario than this one. However, even then, the composite is down 8% which is a remarkable good result given the long term results the wizards have. Rather than saying TF is dead, this environment proves that the strategy is pretty robust, if you don’t understand DD do not bother with TF.

    I also believe that you have to stick to your system in good times and bad, unless it is seriously broken, which doesn’t seem to be the case for the majority of wizards (Altis is probably and exception, I am pretty sure they didn’t expect this DD).

    I don’t think you should expect a DD twice the size of you expected CAGR, many Wizards have a 15-20 year track record with 15% CAGR and DD close to 20%. However I totally agree with Jez about having meta rules, I get out of a program if the DD gets to 150% of my estimation ( I can come back later).

    I have been missing your posts Jez, hope you find the time to post more often.


  • hopewell168

    Wonder how the CTAs are affected by MF global event? This looks like a watershed event. Not only one’s money is not safely guarded, but also one can’t even trade anymore. What would you do if your CTA has some money tied up with MF?

  • Lee MacFarlane

    Hi Jez,

    Are you able to post another wizard – Larry Hite with this list of results? His new company is International Standard Asset Management ( I believe their systems are based on the trend following systems that he has created 30 years ago. But, he has joined with the ISAM group only a year and a half ago so I don’t know if they conform to your list requirements as they have posted results only from May 2010 in their members only section.

    Anyway, I think he is definately a pioneer in trend following.

    Cheers Lee.

  • Jez Liberty

    Hi Lee,
    Yes, I agree Larry Hite definitely is a pioneer of Trend Following!
    Thanks for the heads up on this ISAM association with Hite. I’ll look it up and consider adding it to the list if it is suitable and accessible.

  • Lee MacFarlane


    What do you know about the results that are posted. I’ve always found that some may contain fees and some do not. Is there some standard? Or are all these results for sure after fees?

    I am graphing thier stand dev with sharpe ratios in comparison to our results so what I’ve done for us is show a before and after fee point on our chart for us, just in case…

    cheers, lee.

  • Jez Liberty

    Lee – as far as I am aware (according to the various sources I get the data from), the results are all net-of-fees so that they are not compared in an “apples vs oranges” fashion.

  • William F.

    Just wanted to thank you for a great site and all your hard work.

    It is interesting how even within the trend following community there can be such a wide range of performance on returns.

    I use is a somewhat shorter term method of TF and as such it takes advantage of the counter trends as well and as a result it has produced some very nice returns for the year so far. My method has placed 56 trades so far this year on the EUR/USD pair.

    I have noticed in trend even in trend following people tend to make it more complicated than it really needs to be….. Human nature I guess, we just have to muddle things up.

  • Lee MacFarlane

    “Lee – as far as I am aware (according to the various sources I get the data from), the results are all net-of-fees so that they are not compared in an “apples vs oranges” fashion.

    Your data may be right on. I just found the data from some Funds that they produce publically on thier website sometimes has a different result from the monthly% than the yearly total%.

    I would have to go back through our data we collected from 13 of them that are on your list but our calculation of yearly returns based on thier monthly reported returns showed us lets say a 8% profit for the year and yearly they posted a 10% profit (or 6%, etc.). Whatever the case it was different.

    I noticed this but didn’t pay it to much attention at the time. I did find that some did report year % that were 100% of our results based on thier monthly reports so I knew then that some of them were doing something right.

    Thus my original question. Just out of curiousity I’ll go back on our data and check again when i have a minute.

    cheers, lee.

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