https://www.barrons.com/articles/wi...5845431?mod=hp_BRIEFLIST_1&mod=article_inline
Winton Capital’s Idiosyncratic Founder on Artificial Intelligence and Statistical Fallacies
Most of it is old news. Some highlights.
"Winton researchers once analyzed whether traders could make money by knowing six months in advance the figure for gross domestic product. While Winton did find that traders could profit if they knew the GDP figure a day in advance, essentially trading on inside information, it also discovered that knowing six months ahead wasn’t much help. (The firm did not use the results of the study to build a trading system.)
“If you can’t make any money out of knowing it, how can it be so fundamental?” Harding asks. There is probably some information where advance knowledge can be used to turn a profit, he allows. But, he says, “I have always been very skeptical about economic statistics,” pointing to the fact that they are often revised after release."
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"In an interview spanning more than two hours, Harding eagerly discussed artificial intelligence, which he thinks is overhyped.
Deep neural networks, which use advanced mathematical modeling to process data in complex ways, have “some definite applications,” Harding asserts. But “the idea that you feed in lots of data about financial markets, and then it tells you what is going to happen, is for the birds.”
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"Momentum investing is one area that has served Winton well, propelling the firm to profits in the aftermath of the 2016 Brexit vote. Harding was drawn to momentum investing after observing the success of empiricism over theory in the sciences.
“People like ourselves and our fellow travelers don’t look at individual situations,” he says. “We look at patterns across time and across markets.” Winton has a room devoted solely to charts that display the long-term price movement of 80 different assets from sugar to stocks.
Sometimes, Winton’s systematic trading strategies can mean that its funds stay at the party even after it’s over. In February, for example, Winton’s funds lost 5% in a single month after riding a long bull run in stocks. Winton’s positions in directional stock-index futures had driven returns for more than a year, but trading turned volatile. Funds like Winton’s typically don’t do well when there is a sharp reversal in markets.
Around the time of the loss, Harding declared that he was accelerating Winton’s retrenchment from trend-following, a strategy that had worked fabulously well for the firm for decades. Like most winning strategies, though, the trend-following space had become overcrowded.
By next month, Winton will have reduced its allocation to trend-following by a quarter in its multistrategy fund, with $8.5 billion in assets, and in other funds managing an additional $3.5 billion.
Critics of Winton still question whether the firm’s returns are sustainable, especially given that the hedge fund’s performance has been driven by trend-following strategies that are now too popular.
When stocks hit the skids this past October, Winton was better positioned for the drop in equity prices. But the reversal of long-term downward trends in sugar and coffee, among other commodity movements, weighed on returns. In dollar terms, its Winton fund, which has produced an annual return of 11.92% since its inception in 1997, lost 2.54% in October. In November, it gained 1.36%."
