Tuesday, December 30, 2014

Some familiar names here...

On this page you can look at the monthly performance for some of the most successful CTA's. Looking at this list, it's funny how many names near the top are trend followers, former members of the Turtles programme etc, and that also the majority of those names are amongst the longest established funds on the list.

Among those listed are:
  • EMC - the fund set up by ex-turtle Liz Cheval, who sadly passed away in 2013;
  • Hawsbill - ex-turtle Tom Shanks;
  • Mark J Walsh - 2nd generation Turtle;
  • Saxon Investments - ex-turtle Howard Seidler;
  • William Eckhardt - former partner of Richard Dennis;
  • Abraham Trading - 2nd generation Turtle Salem Abraham, relative of ex-turtle Jerry Parker (Chesapeake Capital, which is also on the list);
  • David Harding of Winton Capital (UK hedge fund);
  • Bill Dunn - trend follower profiled in Covel's Trend Following
  • Paul Malvaney, another trend follower;
  • Rabar Market Research - ex-turtle Paul Rabar.
The other thing to note is the level of drawdown incurred in achieving this performance. Chasing absolute returns means that, by their very nature, the performance will have to overcome some rocky patches. Both Hawksbill and Saxon have had drawdowns in excess of 60%! Most have had single months where they have suffered a loss of more than 20%, as well as several months in a row of losses. Then, the tide turns and as run of profits is made.

As mentioned in this post, these types of drawdowns can be recovered in a relatively short period of time once a decent trend takes off. Looking at the recent returns for a few of these funds they are currently on a run of winning months - almost certainly of the trend in crude oil. One big trend can make a trend follower's year...

These traders know the maths, and how their systems go through profitable and non-profitable phases. The problem with a lot of individual traders is that they seek comfort in a high win ratio, and will take lots of small profits, while risking the occasional big loss. If they are not careful, that can lead to a negative expectancy across their trades.

These successful trend followers shown above know their win rate may well be below 40%, but every so often one big win covers lots of small losses and leaves some profit left over. That's what gives them a positive expectancy.

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