Hill and Hurd: All in the family

October 31, 2009 07:00 PM

When John Hill opened his first futures account in the 1960s, he had no idea he was starting a family legacy. More than 40 years later, he is still trading and developing strategies along with his daughter Holliston.

“I am a chemical engineer. I had a great job in the chemical industry. I had a wife, three kids, and $1,000,” Hill says. “Engineers have a terrible ego. They think they are smarter than most people and I was no different at that stage of my life. I was buying and selling a few stocks and somebody mentioned [futures offered] 5% margin and I said, let me in on that.”

Hill turned that $1,000 to $85,000 in three months in the early 1970s, mainly on the back of huge rallies in sugar and soybeans. “I was pretty young and could take chances,” he says. Hill also turned that $85,000 back to $5,000 in soybeans after a weather shock.

Upon reflection, Hill says he understood that going from $1,000 to $5,000 in six months was pretty good but he knew he had been lucky.

“There were two elements at work. One, there was a big element of stupidity and I had to get some smarts, and two, if it could be done once it could be done again,” he says.

Hill often traveled to Washington, D.C. for his day job and would spend whole weekends in the Library of Congress. “I was studying everything I could on technical trading,” he says.

He was one of the first futures traders to embrace technicals and would include his children in his work. His daughter Holliston would chart markets for him.

He began trading full time in the 1970s, and in 1984, he started Futures Truth as a way to test some of the exceptional claims of so-called market experts. “These gurus would say ‘buy my systems for $2,000 and you will get rich,’ and I bought a piece of junk one time and got aggravated so I said ‘I am going to tell the truth on these cats.’ I started a publication called Futures Truth which reported on the performance of all these get-rich-quick systems.”

Hill adds, “Over the years, people with good stuff started coming to us. We just reported the facts. We didn’t say ‘this was a good system’ or ‘this is a bad system,’ [just] here is what you’d do if you followed the system. We kind of became the Ralph Nader of the financial industry.”

He also traded and imparted his growing technical expertise to his three children. In 1985, after graduating from college Holliston entered a Barron’s trading contest. She came in fifth place, earning 91% trading technical systems she designed under the tutelage of her dad that traded bonds, soybeans, S&Ps, pork bellies and crude oil.

Holliston had her own CTA in the 1980s and was featured on this page in January 1986. In the early 1990s, John Sr., John Jr., and Holliston (now Holliston Hurd) formed CTA Hill Financial Group. It was a short-term trend following reversal strategy based on models the Hills had been developing for years, including those Holliston used in the Barron’s contest. The CTA was very successful and grew to $200 million when Hill sold it to a large institutional CTA.

John Jr. went on to help manage the CTA, while John Sr. and Holliston continued to research and build systems, including the Sam 101 and MS4 programs.

“We spent five years looking for our next product,” Hurd says. “If you have a program that makes money, I can structure the leverage, the markets, the marketing and take it to market.”

Sam 101 is a short-term pattern recognition and momentum program. It also includes some countertrend elements, though the two sometimes spar over whether it uses countertrend or simply short-term trend indicators. MS4 combines Sam 101 with two medium-term systems and a longer-term system and trades a diversified group of futures markets. “Our earlier work was all on reversals. We found that the equity curve was better if we liquidated and then looked for our next signal,” Hurd says. “One of our core strategies is pattern recognition.”

The medium-term strategies have an average holding period of two weeks and the long-term have an average holding period of two months, so they have not strayed too far from their traditional short-term bent. The strategies also depend heavily on market open data, as opposed to closing data, something that has distinguished Hill’s strategies for decades.

Systems are based on simple patterns and then combined with other filters. “We develop these filters that work together and they all have to be met to get a buy in a particular market,” Hurd says.

Both programs launched in October 2007, along with a lower-geared version of MS4. Sam 101 has produced a compound annual return (CAR) of 24.17% with a worst drawdown of 12% and a 1.43 Sharpe ratio, though it is down marginally in 2009. The MS4 program has produced a CAR of 29.29% with a worst drawdown of 7.31% and Sharpe of 1.75.

Hill is based in Hendersonville, N.C., and Holliston works out of Rowayton, Conn., but the two are connected by a family legacy. Over the years there have been many systems and strategies, but Hill says the current ones are far and away their best.

About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.