* Average CTA fund down 5.6 pct so far in October
* Performance would rank as worst month since August 2007
* Funds hit by currency, commodity, bond, equity positions
By Tommy Wilkes and Dasha Afanasieva
LONDON, Oct 29 Computer-driven hedge funds are
headed for their worst monthly performance since the start of
the credit crunch after making losing bets in dozens of markets
including bonds, currencies and commodities.
Many of the funds, known as managed futures or commodity
trading advisors (CTAs), came into October with "risk on"
trades, such as long positions on equities and commodities, and
a short position on the U.S. dollar.
But the trends that these managers try to detect and profit
from - using ultra-complex algorithms designed by legions of
astrophysicists and mathematicians - have "reversed" and gone
against them in multiple markets.
The average fund is down 5.63 percent this month to Oct. 25,
according to Newedge's CTA Trend Sub-Index. If the index stays
at or around that level at month end, the performance will rank
as their worst month since August 2007.
"In and of themselves these moves weren't massive, it's just
we've had so many reversals everywhere," Alex Greyserman, chief
investment officer at ISAM, a roughly $900 million fund which is
also down some 5 percent in October.
Greyserman said there was no single macro factor that caused
so many of the trends to reverse but instead market specific
reasons. ISAM posted losses in markets as diverse as equities,
metals and agricultural commodities.
"Statistically these things can happen, but they shouldn't
happen very often. It's just been one of those months when the
trades went against you everywhere for a number of reasons."
The biggest funds in the predominantly London-based
community, such as David Harding's $29 billion Winton Capital
and Man Group's $16.3 billion AHL, have not been immune
either, and are also suffering significant losses.
BlueCrest Capital, one of the world's biggest hedge funds,
recently overhauled the way it trades in one of its computer
funds, a source said earlier this month, sending a powerful
signal that some 'black box' programs may be broken.
CTAs have enjoyed explosive growth in recent years as
investors look for strategies less correlated to equities and
While the big October losses wipe out earlier gains made
this year, the average CTA fund is still flat in 2012, the
Newedge index shows.
Aspect Capital, headed by Martin Lueck, has watched its main
fund slump 5.28 percent in October, bringing year-to-date falls
to just shy of 11 percent, performance data seen by Reuters
Other big fallers include $4 billion strong Cantab Capital
Partner's Aristarchus and Faraday funds, down 4.52 percent and
5.05 percent to Oct. 19 respectively, the data shows. However,
both funds are still up year-to-date.
Winton Capital's flagship fund has fallen 3.28 percent to
Oct. 26, leaving it 6.5 percent in the red this year, while AHL,
part of troubled hedge fund firm Man Group, is down around 4
percent year-to-date after a 3.5 percent fall this month to Oct.
"Winton has been trading since 1997 and so far we've only
had one down year in 15, which is better than we expect," a
Winton spokesperson said.
AHL said it had fared better than most of its competitors,
noting that its performance was better than the Newedge index.
"October has been a difficult month for CTAs, with reversals
in trends for many asset classes, such as bonds, interest rates,
stocks, gold, and currencies," AHL said in an emailed statement.
Based on Newedge's Trend Indicator, calculated using a
generic trend following model, the worst positions in October
are long Japanese yen and long silver, James Skeggs, Global
Co-Head of Advisory Group - Alternative Investment Solutions,
Currencies accounted for 80 basis points of the 3.4 percent
fall in the Trend Indicator this month to Oct. 26, commodities
140 basis points and bonds and fixed income 90.
"It hasn't been a great month for CTAs. But these strategies
don't claim not to have volatility," Skeggs said.
CTA managers are quick to point out that monthly losses of
this magnitude are rare in the industry, but some investors
worry that trendless or choppy markets driven by the latest
policymaker move is making life increasingly difficult.
"These risk on risk off swings, caused by policy statements,
have made it difficult for systematic funds to adjust," Ben
Funk, Head of Research at Liongate Capital Management, said.