a levered sharpe ratio of 1.0 looks like that. quadriga AG, the lowest levered version is down -14% for the year. within industry mean and expectations. is it much? yes. is it usual? yes. quadriga never attracted professional money, in fact they never cared too much about it (at least not from the moment on when they realised they could get cheaper money elsewhere). quadriga is not a hedge fund. the articles' reference to hf indices is plain uninformed. some trend followers (admitted: just a few) are even up for the year. peace
If you manage money for a living.. yes it is a big deal. Maybe not a big deal in a $5,000 ameritrade account.. but in wall street thats a huge loss. Once you go pass 20% loss... your are usually finished. The only people that can survive those type of drawdowns are the John Henry funds.. but for most smaller shops.. they are toast.
Two things. Dunn has been down as much as 50% at one point during it's 25+ year history. It's all a matter of how much volatility you want to eat. The aggressiveness of Quadriga's marketing + their fee structure scares me.
There are two sides to this coin. This kind of drawdown is not at all unusual for systematic traders, particularly those in leveraged futures markets. On the other hand, it is near catastrophic in the hedge fund world where low drawdowns are pretty much their attraction. If the managers are being compensated with an incentive fee applied against a high water mark, they are under a huge incentive to take excessive risk to get back into positive ground. Smart investors recognize that and don't want to have their funds at risk when the managers are tossing hail mary passes. Most futures CPO's try to get the best of both worlds by combining trend and counter-trend systems, heavy diversification and low leverage. Of course, all those cut into the max returns they can deliver.
Have a look at the performance of these two original Turtles: http://www.iasg.com/SnapshotPT.asp?ID=641 http://www.iasg.com/SnapshotPT.asp?ID=147 They both had drawdowns exceeding 60% at some point in their history and they have both done pretty well since then, posting the CAGR of more than +20%.
Yeah, a 20-30% drawdown is typical with any systematic trend following program. But your point about hfs and high water mark is correct. The thing about hfs is that people expect low vol from them. But I think CPO/CTA and futures funds do have large drawdowns of even 50-60%. And if you believe in long term trends and you have the capital to weather this, then it's OK... But if you investors flee then it can be game over. But hfs like long/short or convert arbs or stat arb, 20% drawdown can mean game over b/c of high water mark. misc
I don't agree. IASG and Barclays are littered with those who have exceeded 20% drawdowns a number of times and gone forward to thrive. Maybe 40% or 50%, but not 20%.
I'm not a big fan of the Sharpe ratio, but I have to admit that it does have its merit when you look at the first chart. Sure, the CAGR is 20%+, but most of that is from the first two years. Any investor who got in after the first two years are making far less than 20%.
I agree. Sure, there are a few that are outstanding, but the only difference between most hedge fund managers and the individual investor/trader who applies himself is that the hedge fund manager can fundraise. There's also the difference in that institutional sales will give "proprietary" information to them.