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Last updated: June 5, 2013 3:10 pm
Quant hedge funds hit by US
bonds sell-off
By Sam Jones
Some of the worlds biggest quant hedge funds have
suffered steep losses in the past two weeks following
the sell-off in global bond markets.
So-called CTAs, which use computer models to
automatically spot and ride market trends, were
caught out as investors anticipated an end to the
Federal Reserves measures to stimulate the US
economy, triggering a global rout in fixed income investments.
Bond yields have risen sharply from some of their lowest levels in decades in the past fortnight,
leaving funds with large holdings badly hit. Many quant funds have been major buyers of bonds
over the past few years as their algorithms have followed yields lower.
Since mid-May it has been a perfect storm of some of the biggest trends in markets reversing
all at once, said a senior manager at one large quant fund. It has been particularly brutal.
AHL, the $16.4bn flagship fund of Man Group, the worlds second-largest hedge fund by assets,
lost more than 11 per cent of its net asset value in the past two weeks alone as a result of its
huge bond holdings, according to an investor.
News of the funds difficulties triggered a 15 per cent drop in Mans share price on Wednesday.
Aspect Capital, another large European CTA, lost 6.4 per cent in May.
Geneva-based BlueTrend, the $14bn quant division of BlueCrest Capital run by Leda Braga,
told investors its fund was down 4.4 per cent for the month as of May 24. The fund has yet to
reveal losses incurred last week, but investors say they are likely to be high. BlueTrend runs a
more volatile version of the same strategy as Man.
Sources at the funds say this week has also been painful and losses have been extended.
Chris Batson/FT
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Most quant funds only privately communicate performance data with their investors on a
weekly or even monthly basis.
Many of them have also had long positions on contracts linked to Japanese equities. The Nikkei
has slumped 5.5 per cent so far this week, extending a month-long fall.
May has rattled investors with large bond portfolios, said Anthony Lawler, portfolio manager
for hedge fund investor GAM. Across all [hedge fund] strategies, trades that caused pain
included long fixed income positions and long exposures to the many markets that reversed or
were choppy, including energy, Japanese equities and soft commodities.
Although CTAs are known to be volatile, the losses are still among the highest reported to
investors in years and have been spread broadly.
Graham Capital, the USs largest CTA, was down 3.9 per cent for the month, while Holland-
based Transtrend was down 3.1 per cent.
Winton, the worlds largest quant fund, managed to sidestep the worst of the losses. The
London-based company dropped just 2.5 per cent in May, but is still up 6.5 per cent for the
year.
Although almost all of Wintons losses were attributable to US bond market moves, unlike its
peers, Winton has moved to diversify its algorithmic trading programmes into cash equities and
away from its traditional focus on futures contracts. The fund also operates with lower leverage
than many of its rivals.