Trend-following funds head for third down year

September 28, 2013 Leave a comment

Trend-following funds head for third down year

Fri, Sep 27 2013

NEW YORK (Reuters) – Long-term trend following funds are headed for a third straight year of losses unless the underlying commodity and financial markets they trade settle into a more predictable pattern, which does not seem likely given the Federal Reserve’s mixed signals on the U.S. economic stimulus. Many of the so-called Commodity Trading Advisors (CTAs) were whipsawed in the first half by market gyrations over whether the Fed would cut its bond buying this year. Further volatility seems likely after the Fed said last week it needed more time to decide on the stimulus. Some CTAs trading on shorter time horizons and focused on gold made money as bullion prices swung on speculation over the Fed. Other funds gained in the past two months by following a relatively steady rally in oil caused by Middle East tensions, and a run-up in cattle prices.Details on the performance and asset size of several CTAs, and comments from their managers:

DOWN

— Quantum Leap Capital, Sugar Land, Texas —

* Down 14 percent through August, according to data from funds-tracking portal IASG.

* Has about $20 million under management and trades 15 markets, including commodities.

* Comment from manager Juan Carlos Herrera

– “The essence of succeeding as a CTA is having the opportunity to enter and stay in a market. You really need continuous movements and in one direction. If only three or four of the markets you’re in are doing that, then it’s going to downsize your returns.”

“We kept getting stopped out of our trades by mixed signals in July. We have very tight stops, tighter than most CTAs. We got chopped up on gold, soybeans and copper.”

— Abraham Trading, Canadian, Texas —

* Down 0.6 percent for the year through August, with about $234 million in assets, according to CTA database Altegris.

Comment from founder Salem Abraham

– “In the years CTAs really made money, markets moved 30 to 50 percent over 6 to 12 months. This year’s moves are much smaller and too short.”

UP

— R.G. NIEDERHOFFER CAPITAL, New York —

* Flagship diversified CTA fund manages more than $500 million and commits about a quarter of trades to commodities.

* Up 11 percent year-to-date in the first turnaround since 2008 at the fund, which specializes in taking advantage of short-term market moves. This makes it one of the year’s better-performing CTAs.

* Was long on roughly $100 million worth of gold at the start of the Sept 16-20 week, gaining from bullion’s 4 percent rally on Sept 18 after the Fed said it was staying the course on its monthly bond-buying. By Sept 20, the fund had switched to a short position of $65 million on gold before bullion gave back a bulk of that week’s rally. The switch preserved Niederhoffer’s profits on its gold bet and highlighted the advantage of its short-term strategy.

Comment from founder Roy Niederhoffer

– “These are periods of high volatility, when great deals of emotion, fear and exuberance are driving markets. Short-term strategies that have been out of favor for quite some time are starting to work again, not just our’s.”

— M6 Capital, Germantown, Tennessee —

* Up 7 percent through August by following a run-up in soybean prices, and manages nearly $50 million

Comment from manager Chris Myers

– “There is no lack of opportunity in agricultural markets in coming months. M6 Capital’s analysis continues to point to these opportunities being in both bull and bear markets.”

— Campbell & Co, Baltimore, Maryland —

* Manages more than $3 billion

* Flagship fund rose nearly 10 percent through August, about 7 percent of that coming from commodities, particularly gold.

Comment from business development manager Tracy Wills-Zapata

– “I would certainly say that metals have been a strong contributor for us, both industrial and precious.”

— Novus Investments, San Ramon, California —

* Manages $120 million firm-wide

* Precious metals-focused trend following fund up 4 percent on the year. Gained more than 11 percent in August alone, erasing losses from earlier months.

Comment from managing director Don Davis

– “We’re far from perfect, but we did catch the recent move up in gold.”

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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