Macro Funds Fare Better Than CTAs in Hedge Fund Industry

By Laurence Fletcher 

        In hedge fund land, man has pulled ahead of machine.
        Computer-driven funds that trade using complex programs, often devised by scientists and mathematicians, have been hurt by choppy markets.
        According to data group Hedge Fund Research, the $272 billion computer-driven sector--also known as CTAs, commodity trading advisers--is on a three-month losing streak. These funds are now down 1.8% so far this year to the end of June. They had gained 5% by the end of the first quarter of this year, following a 10.7% advance last year.
        In contrast, macro funds--which use human judgment to make trades, often betting on a similar range of assets to CTAs, including stocks, bonds, commodities and currencies--have fared better. Having last year lagged behind CTAs, macro funds are down 0.4% so far this year, while on average the hedge fund industry is up 2.4%.
        The second quarter of this year was "very challenging for CTAs, particularly in June, as a number of strong trends reversed quickly across several asset classes," said Odi Lahav, chief executive of Allenbridge Investment Solutions LLP, which advises pension funds on investing in hedge funds.
        Factors hurting these funds included a wobble in U.S. rates because of "mixed messages" from the U.S. Federal Reserve, fears that Greece would leave the eurozone indirectly hitting stocks and bund yields, price spikes in some agricultural commodities due to floods in the U.S., and very sharp falls in the Chinese stock market, he said.
        Among computer funds posting a sharp downturn in performance is Man Group's AHL Diversified fund. Following a 33.9% gain last year it was up more than 8% by the end of the first quarter of this year, according to performance data reviewed by The Wall Street Journal.
        But recent losses have reduced it to a 6.3% loss for this year to July 13, according to data from the firm. It was hit in the last week of April when both European bond yields and the euro spiked, and in June when stocks fell on worries over Greece, the euro rallied and then fell, and corn prices shot up, said a person familiar with the fund's performance.
        Two computer driven funds run by Winton Capital Management Limited are also down this year, having been up by more than 5% in early April.
        The flagship $12.3 billion Winton Futures fund is down 0.7% this year to July 13, according to a person familiar with the numbers, while the smaller Evolution fund is down 1% this year to the same date. Gains of more than 1% this month have helped both funds pare losses.
        Cantab Capital Partners LLP's $2.7 billion Quantitative fund was up more than 13% at the end of March, according to performance numbers reviewed by The Wall Street Journal. But after sharp performance losses the fund is down 5.6% this year to July 3, said a person who had seen the numbers.
        "Markets have been very politically influenced," said Martin Estlander, chairman of Helsinki-based Estlander & Partners, which runs $480 million in assets. He said the firm's main AlphaTrend fund was flat in performance terms for the year by the end of June.
        However, some computer-driven funds are thriving.
        SECOR Asset Management LP's $210 million Secor Alpha fund, a computer-driven global macro fund, gained 1.9% in June, taking gains in the first half of the year to 10.1%, according to a letter to investors obtained by The Wall Street Journal.
        The fund, which was up almost 31% last year, made money trading bonds as the Greek debt crisis unfolded, and from rising grain prices and betting against U.K. stocks, among other things, according to the letter. Secor declined to comment.
        Allenbridge's Mr. Lahav said that the recent downturn in CTA performance should be put in context.
        "The reversal is in some respects a natural pullback for momentum-based strategies after periods of strong performance," he said.
        Write to Laurence Fletcher at laurence.fletcher@wsj.com
        (END) Dow Jones Newswires

        July 20, 2015 10:20 ET (14:20 GMT)

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