Tue Oct 30, 2012 6:23am EDT * Average CTA fund down 5.6 pct so far in October * Performance would rank as worst month since August 2007 * Funds hit by currency, commodity, bond, equity positions By Tommy Wilkes and Dasha Afanasieva LONDON, Oct 29 (Reuters) - Computer-driven hedge funds are headed for their worst monthly performance since the start of the credit crunch after making losing bets in dozens of markets including bonds, currencies and commodities. Many of the funds, known as managed futures or commodity trading advisors (CTAs), came into October with "risk on" trades, such as long positions on equities and commodities, and a short position on the U.S. dollar. But the trends that these managers try to detect and profit from - using ultra-complex algorithms designed by legions of astrophysicists and mathematicians - have "reversed" and gone against them in multiple markets. The average fund is down 5.63 percent this month to Oct. 25, according to Newedge's CTA Trend Sub-Index. If the index stays at or around that level at month end, the performance will rank as their worst month since August 2007. "In and of themselves these moves weren't massive, it's just we've had so many reversals everywhere," Alex Greyserman, chief investment officer at ISAM, a roughly $900 million fund which is also down some 5 percent in October. Greyserman said there was no single macro factor that caused so many of the trends to reverse but instead market specific reasons. ISAM posted losses in markets as diverse as equities, metals and agricultural commodities. "Statistically these things can happen, but they shouldn't happen very often. It's just been one of those months when the trades went against you everywhere for a number of reasons." The biggest funds in the predominantly London-based community, such as David Harding's $29 billion Winton Capital and Man Group's $16.3 billion AHL, have not been immune either, and are also suffering significant losses. BlueCrest Capital, one of the world's biggest hedge funds, recently overhauled the way it trades in one of its computer funds, a source said earlier this month, sending a powerful signal that some 'black box' programs may be broken. CTAs have enjoyed explosive growth in recent years as investors look for strategies less correlated to equities and bonds. While the big October losses wipe out earlier gains made this year, the average CTA fund is still flat in 2012, the Newedge index shows. TOP FALLERS Aspect Capital, headed by Martin Lueck, has watched its main fund slump 5.28 percent in October, bringing year-to-date falls to just shy of 11 percent, performance data seen by Reuters shows. Other big fallers include $4 billion strong Cantab Capital Partner's Aristarchus and Faraday funds, down 4.52 percent and 5.05 percent to Oct. 19 respectively, the data shows. However, both funds are still up year-to-date. Winton Capital's flagship fund has fallen 3.28 percent to Oct. 26, leaving it 6.5 percent in the red this year, while AHL, part of troubled hedge fund firm Man Group, is down around 4 percent year-to-date after a 3.5 percent fall this month to Oct. 25. "Winton has been trading since 1997 and so far we've only had one down year in 15, which is better than we expect," a Winton spokesperson said. AHL said it had fared better than most of its competitors, noting that its performance was better than the Newedge index. "October has been a difficult month for CTAs, with reversals in trends for many asset classes, such as bonds, interest rates, stocks, gold, and currencies," AHL said in an emailed statement. Based on Newedge's Trend Indicator, calculated using a generic trend following model, the worst positions in October are long Japanese yen and long silver, James Skeggs, Global Co-Head of Advisory Group - Alternative Investment Solutions, said. Currencies accounted for 80 basis points of the 3.4 percent fall in the Trend Indicator this month to Oct. 26, commodities 140 basis points and bonds and fixed income 90. "It hasn't been a great month for CTAs. But these strategies don't claim not to have volatility," Skeggs said. CTA managers are quick to point out that monthly losses of this magnitude are rare in the industry, but some investors worry that trendless or choppy markets driven by the latest policymaker move is making life increasingly difficult. "These risk on risk off swings, caused by policy statements, have made it difficult for systematic funds to adjust," Ben Funk, Head of Research at Liongate Capital Management, said. http://www.reuters.com/article/2012/10/30/black-box-funds-idUSL5E8LU7HN20121030
Since it's zero sum in derivatives. Creating consolidation phases in multiple instruments leads to account destruction and money transfers to who play consolidation instead of trend systems. Someone obviously made the money.
Now, I am starting to believe one retail broker ( Oanda?), who claimed more than 30% of its retail traders were profitable. I always wondered where the money came from...
So much for the "ultra-complex algos". It's always been said: "keep it simple". The Donchian method is a perfect example of that for trend following.
It doesn't matter if your strategy is simple or complex. Every strategy will fail perodically. The real question you should be asking is whether or not the strategy is profitable <i>over time.</i> Donchian channels will lead you astray as well.
from this- ----------"In and of themselves these moves weren't massive, it's just we've had so many reversals everywhere," Alex Greyserman, chief investment officer at ISAM, a roughly $900 million fund which is also down some 5 percent in October.----------- it really sounds like they are trading something like MA crossovers IMO-ultra complex algos should give you a hedge against sudden moves,while provide nice,steady PnL month over the month,week after week. otherwise-they are f** useless,along with those quants. after all looks like those math wizards are no better than me..