Quantitative funds, one of the fastest-growing hedge fund strategies, have lately produced mediocre performance, a report shows
Quants have become the hot hedge fund strategy du jour, with the value of their holdings more than tripling since 2009. But as more money pours into the area, that success may be its own undoing.
There’s already some evidence that’s happening. According to a Société Générale survey of more than 100 commodity-trading advisers and quantitative macro funds that Institutional Investor has exclusively obtained, these systematic funds returned a mere 0.04 percent for the year-to-date through February after falling an average of 1.07 percent last year. Meanwhile, the Standard & Poor’s 500 stock index gained 5.9 percent through February, on top of a 12 percent rise last year.
With $76.8 billion, Bridgewater’s Pure Alpha strategy is the largest fund in the group — and a leading indicator. Pure Alpha 18 percent, its largest fund, is up only 0.16 percent through February, with a 2.4 percent return for 2016. Over time, it has done well. Since inception in 1991, it has annualized at 12.3 percent. Pure Alpha 12 percent, which has less leverage, was up 0.2 percent through February and down 2 percent last year. It has produced an annualized return of 9.1 percent since inception in 1991.
London-based Winton Group shows a similar profile. Its $10 billion Winton Futures Fund is up only 1.47 percent this year, after losing 3 percent last year. But it has produced a 12.68 percent annualized return since its inception in 1997, according to Société Générale.
Three older funds run by Man Group repeat the pattern. The $4 billion Man AHL Alpha Fund is up 1.12 percent through February and fell 3 percent last year, and the $5.2 billion Man AHL Dimension is up 0.27 percent this year, after a loss of 1.21 percent last year, the report says. Man AHL Alpha, launched in 1994, has produced an annualized gain of 11.64 percent, whereas Man AHL Dimension, debuting in 2006, annualizes at 5.27 percent, according to Société Générale.
Newer funds aren’t doing so well over time, which may be an indication that the strategy has gotten tougher. Four relatively new funds of AQR Capital Management are up slightly for this year but were deep in the red for 2016, with meager returns since inception. A $12.8 billion AQR managed futures fund with moderate risk, launched in February 2012, is up 1.82 percent this year, after falling 8.44 percent last year. It’s only up 1.56 percent since inception, according to Société Générale....MORE
