Another computer driven hedge fund closes

cmdtytrdr · Oct 9, 2013

Quote from Ash1972:

CTA funds are not making money for one simple reason: for the last 5 years or so there has been no <i>uncorrelated directional</i> volatility across futures markets.

The solution? Wait for it to come back, and voila, CTA will once again be very profitable.

Great, but now change the word "CTA" with "all trading", and replace the word "futures" with "any". Then the picture becomes perfectly clear.

blakpacman · Oct 9, 2013

Quote from newwurldmn:
Central bank influences are not an excuse for losing money. These are pitched as absolute return funds, not trend following when the trend suits us.

They don't know what other excuse to give. They can't say the dog ate my returns

Quote from slumdog:
Volatility will return at some point. And these funds would have printed money had they still been around.
Market sentiment can change pretty quickly.

Agreed.

cmdtytrdr · Oct 9, 2013

Quote from dealmaker:

Another reason could be too many computer driven hedge funds thus edge is gone or is negligible...

Nope. That obviously never helps, but it's not the real reason.

More players have left the space in the last five years than ever before and it's still not profitable so we have a controlled environment to clearly observe and ascertain that that cannot be the reason.

dtrader98 · Oct 9, 2013

Quote from Ash1972:

CTA funds are not making money for one simple reason: for the last 5 years or so there has been no <i>uncorrelated directional</i> volatility across futures markets.

The solution? Wait for it to come back, and voila, CTA will once again be very profitable.

Although it's a great reason and I agree a lot, the (CTA performance) decay has been going on for much more than 5 years. Correlation across markets has been increasingly rising and there was a good book I was reading about it some time back:
http://www.amazon.com/Systemic-Liqu...361333&sr=8-1&keywords=risk+on+risk+off+wiley

I think some of the long term decay is a combination of correlation increasing and too many jumping on the same edge bandwagons. I think CTAs (as a whole) need to adapt and diversify beyond the simple trend following models to prosper; as I don't really know if these models will 'come back' to consistent very profitable levels.

cmdtytrdr · Oct 9, 2013

Quote from dtrader98:

Although it's a great reason and I agree a lot, the decay has been going on for much more than 5 years. Correlation across markets has been increasingly rising and there was a good book I was reading about it some time back:
http://www.amazon.com/Systemic-Liqu...361333&sr=8-1&keywords=risk+on+risk+off+wiley

I think some of the long term decay is a combination of correlation increasing and too many jumping on the same edge bandwagons. I think CTAs (as a whole) need to adapt and diversify beyond the simple trend following models to prosper; as I don't really know if these models will 'come back' to consistent very profitable levels.

If we have Harvard grads in the Country working at McDonalds for minimum wage do you think the solution is that they need to be smarter and work harder to find a good job, or do you think maybe the fault and the solution doesn't lie with them?

OK, I'm outta ET for a while. Too much BS on here.

JamesVU2000 · Oct 9, 2013

Quote from dtrader98:

Although it's a great reason and I agree a lot, the (CTA performance) decay has been going on for much more than 5 years. Correlation across markets has been increasingly rising and there was a good book I was reading about it some time back:
http://www.amazon.com/Systemic-Liqu...361333&sr=8-1&keywords=risk+on+risk+off+wiley

I think some of the long term decay is a combination of correlation increasing and too many jumping on the same edge bandwagons. I think CTAs (as a whole) need to adapt and diversify beyond the simple trend following models to prosper; as I don't really know if these models will 'come back' to consistent very profitable levels.

Interesting fine. I am interested in seeing the flash crash. I remember junk bond etfs blowing out because of Greece. That was the heads up.

OddTrader · Oct 9, 2013

Quote from dealmaker:

The Density fund, which traded 138 markets in stocks, fixed income, currencies and commodities, had been run as a strategy in Swedish-based Brummer & Partners' Nektar unit, which manages the $4.7 billion Nektar fund, a portfolio that has made money every calendar year since 1998 apart from in 2008.

Density launched on its own in 2008 and made large profits around the time of Lehman Brothers' collapse. But the portfolio, which grew to around $54 million in size, has struggled in recent years, losing 14.9 percent in the first nine months of this year.

...

"We aim for a niche in the CTA space but it's not worked out well at all ... We don't have the resources to continue fighting," Vikstrom said.

Since the end of 2008 the Density fund has fallen around 26.6 percent, according to a fund fact sheet seen by Reuters.

What resources are required to continue fighting?

nazzdack · Oct 10, 2013

Quote from dealmaker:
----The Density fund....
----has struggled in recent years....
----losing 14.9 percent in the first nine months of this year.
----Since the end of 2008 the Density fund has fallen around 26.6 percent....

It will reorganize as the Dense Fund with a new highwater mark.

:eek:

promagma · Oct 10, 2013

Quote from cmdtytrdr:

Nope. That obviously never helps, but it's not the real reason.

More players have left the space in the last five years than ever before and it's still not profitable so we have a controlled environment to clearly observe and ascertain that that cannot be the reason.

No ... you have to look at it on a percentage basis. Back in the day, if 20% of the market was computer driven, it's a lot easier to retain an edge. Now, if 60-80% are these types of algorithms, it's not so easy.

I think dealmaker is right, too many squirrels going after the same nut.

ronblack · Oct 10, 2013

Quote from promagma:

No ... you have to look at it on a percentage basis. Back in the day, if 20% of the market was computer driven, it's a lot easier to retain an edge. Now, if 60-80% are these types of algorithms, it's not so easy.

I think dealmaker is right, too many squirrels going after the same nut.

Trying to trade too many markets with a trend-following system can lead to failure because of capital constraints. Trend following works only when you have a good idea where the trends are going to develop. Sounds to me like good salesmen with large accounts but no experience with trading. Not every fund with a fancy name has experience.