Winton, Quants and European Crisis

Chidem Kurdas

Suppose there is a chaotic Greek exit from the euro zone, with steep declines in equity markets. In that case quantitative-model-driven futures traders should do well, judging from the record of the past 15 years.

What makes a trading strategy independent of the market so as to be immune to crisis? Systematic model-driven traders don’t bet on a market going up or down. William Marr, chief executive of  Ramius Trading Strategies, a multi-manager investment vehicle, says almost all the managers on the platform are systematic and take no position as to market direction. That results in performance that is non-correlated to the equity market.

Ramius, part of Cowen Group, manages over $10 billion in assets.

Winton Capital, currently one of the highly regarded systematic futures managers, returned 21% in the crisis year of 2008 and 18% during the stock market slump of 2002. There was a 4.6% loss in 2009, but 2010 and 2011 were highly profitable. As a result of this performance, Winton attracted a lot of money. Assets had grown to around $29 billion as of this March.

2008 was a great year for managed futures in general. But in the past three years Winton’s performance has been an exception. From March 2009 through June 2011, an S&P 500 tracker rose by 89% as markets recovered from the crisis. In that time the Altegris 40  – a index of large futures trading funds – lost 1%.

Investors who came into managed futures after its great performance in 2008 were disappointed in the last 36 months, says Dick Pfister, a managing director at Altegris, a specialist in managed futures investing with $4.5 billion in assets. Some investors are asking why they are in this asset class when they could just buy an S&P 500 ETF.

Unfortunately, many people bought into managed futures at its post-2008 peak, were disappointed and sold at a low point. To get the benefit of the managed futures’ crisis insurance, one needs to be already invested when a crisis shows up. Mr. Pfister suggests investing at least 10% of the portfolio in diversifying alternatives such as managed futures.

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