Friday, April 18, 2014

Fund Managers Are Going Out of Business

There was an interesting news item reported by Bloomberg today, Eric. A $120 million managed-futures fund run by Tudor Investment Corp., which is one of the best fund managers in the business, is closing and returning money to its clients because of three years of losses....

This report follows closely on the heels of managed futures funds that were closed by John Henry & Co., which up until the years before its closure had a great track record. Also, reported losses are being incurred by one of the largest managed-futures companies, the Man Group and its flagship AHL Fund, which until recently had a successful track record going back to the early 1980s.

There is an interesting story here because there is a similarity to these funds. All of them are managed by ‘black-box’ mathematical models. These models are designed to spot price trends of commodities. So the fund buys futures contracts when trends are rising, and sells the long position (and some aggressive funds, at the same time, even go short) when the price trend reverses.

These models were very successful and generated outsized returns from the time they were first developed in the late 1970s up until the last several years. So they key question is what caused their change in fortune? The answer is simple...

- Source, James Turk via a recent King World News Interview, read more here: