Quants Get Traction After Tough Year

Chidem Kurdas

Trend-following quantitative traders of futures contracts did better than most hedge fund categories in the two-month period from December first through the end of January, returning 2.77% according to the Dow Jones Credit Suisse Core Hedge Fund Index. Only convertible arbitrage, a strategy that goes through its own cycles, had a higher gain during the two months.

This follows a bad year, when futures trading lost around 3% to 4%, depending on the database. But the 2011 annual performance conceals ups and downs. Jon Sundt, chief executive of Altegris, says in the summer of  ‘11, as markets reacted to the debt crisis, managed futures did well— producing “crisis alpha” as expected from a true portfolio diversifier.

But many funds lost out in the fall. Greg Anderson, chief investment officer of Princeton Fund Advisors, said futures managers followed the downtrend in stocks into Fall. In October, the market suddenly rallied, so they were caught short. He said investors ask why the funds did not switch from short to long earlier but trend followers react to market movements, don’t predict them.

David Kavanagh, president of Dearborn Capital and manager of Grant Park Managed Futures fund, said futures is a defensive strategy but takes advantage of trends as these emerge. This provides portfolio diversification because the returns are largely uncorrelated to the equity market.

Mr. Sundt says the strategy lost money in only two of the last 14 years and even in a bad year like 2011 the loss is limited.

Altegris manages a number of futures mutual funds distributed by Northern Lights, as well as other hedge fund and futures portfolios. The Altegris Managed Futures Fund has grown to $1 billion in assets and invests with highly regarded trading shops such as London-based Winton Capital.

Grant Park and Princeton Futures are also distributed by Northern Lights.

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Tags: Altegris, David Kavanagh, Dearborn Capital, Dow Jones Credit Suisse Hedge Fund Index, Grant Park Managed Futures, Greg Anderson, Jon Sundt, Northern Lights Fund Trust, Princeton Fund Advisors, Winton Capital