Monday, July 10, 2017

Quants: Renaissance Technologies Stumbles In June

Last Friday Institutional Investor had a piece on Ren Tech:

Renaissance Technologies Stumbles in June
The high-flying quant firm, which had a strong 2016, posted losses in three of its funds last month in an otherwise decent year for the firm.

Renaissance Technologies, whose founder James Simons topped Institutional Investor’s Alpha’s Rich List this year, has long been considered the premier quant firm — and never more so than in an era in which quants rule, as they do now. But even Renaissance stumbles occasionally, as it did most recently in June.

Three funds run by $50 billion Renaissance Technologies fell between 2.5 percent and 4.5 percent during the month, according to individuals familiar with the performance. The three funds, which drew in more than $3 billion in fresh cash from investors during the first five months of this year, remain in the black for the year after double-digit gains in 2016.

The Renaissance Institutional Equities Fund, the oldest and largest Renaissance fund that is open to outside investors, lost 2.5 percent in June, leaving it up 7.8 percent for the year. It gained 21 percent in 2016. Renaissance Institutional Diversified Alpha Fund, launched in 2012, fell the most. It was down 4.5 percent in June, but is still up 8.5 percent this year after gaining 10 percent last year. The newest of the three, the Renaissance Institutional Diversified Global Equity Fund, a market-neutral fund that came out of the gate last year, was down 3.4 percent in June. Even with the drawdown, however, it’s up 11 percent for the year....MORE
While Bloomberg was looking at the wider universe:  

Cross-Asset Quants Are Facing Their Worst Losses in a Decade
  • CTA funds plunge 5.1 percent for worst period since 2007
  • Selloff in stocks, bonds worry critics of systematic funds
Hawkish signals from central bankers have punished stocks and bonds alike in the past week.
Also punished: investors who make a living operating in several asset classes at once. They’ve been stung by the concerted selloff that lifted 10-year Treasury yields by 25 basis points and sent tech stocks to the biggest losses in 16 months. Among the hardest-hit were systematic funds who -- either to diversify or maximize gains -- dip their toes in a hodgepodge of different markets all at the same time.

Losses stand out in two of the best-known quant strategies, trend-following traders known as commodity trading advisers, and risk parity funds. CTAs dropped 5.1 percent over the past two weeks, their worst stretch since 2007, according to a Societe General SA database of the 20 largest managers. The Salient Risk Parity Index dropped 1.8 percent, the most in four months.

To a category of critics, it’s an environment where the potential for snowballing losses becomes greater, as the overseers of such funds take steps to reduce risk. So many face losses at once, the theory goes, that a chain reaction of selling ensues with the potential to whack markets further.
So far, there’s no clear indication that’s happening. Selling in U.S. equities has been confined mostly to tech shares, with financial stocks rising toward 10-year highs. Bonds yields have spiked, but remain below levels seen in May.

Any systematic selling was probably drowned out by discretionary managers, according to Roberto Croce, director of quantitative research at Salient Partners LP.

“I don’t think we can say that the moves in the market are due to them,” Croce said. “Some portion of the investing base freaks out and runs for the hills, but these types of portfolios tend to snap back quickly if you don’t take any risk off. It’s much more likely to be discretionary investors that are fleeing whatever they’re holding without a plan.”

It’s far from clear risk-parity and CTA funds react to the same set of inputs. While both invest in multiple asset classes and employ leverage, risk parity tends to be a slower and more passive strategy, aiming to engineer a smoother ride by giving smaller weightings to higher-volatility assets. CTAs, a type of managed futures strategy, follows short-term trends and tends to be more volatile and less correlated to the market....MORE