From the October 01, 2010 issue of Futures Magazine • Subscribe!

Hot New CTAs: What new managers can teach the old pros

This is the 21st year Futures has profiled emerging commodity trading advisors (CTA). Every year is unique, and 2010 has been no different. Last year was tough and 2010 has been difficult and hard to define. The BarclayHedge CTA index is on pace to register only its fifth negative year since 1980 and the first time it would have back to back negative years (though there is a lot of time left).

When reviewing candidates, we look at not only recent performance but also overall performance and the manager’s general approach to trading. Because new managers with limited money under management may be more susceptible to volatility, we do not judge drawdowns as harshly as we would more experienced managers, though we do look at it.

Previous “Hot New CTAs” have gone on to great success and some have slipped into obscurity. This is not an endorsement but a review of new talent. We would like to thank all the managers who sent us their documentation. We will do this again next year, so look for our announcements.

Stratford: New fundamental approach

Kevin Benoit’s fundamental short-term equity index program is not the first he has run at Stratford Capital Management but it is so different from what he has done in the past that it might as well be.

Benoit started his trading career at Bear Stearns right as the muni bond futures contract launched. Benoit and a partner devised the first arbitrage for the muni bond contract. When he moved to Prudential a couple of years later, he continued to arb the muni bond contract.

“I did all the hedging for their retail and institutional desks and I was trading for my own account,” Benoit says. “I did well and brought some customers into Pru and my customers asked me to go out on my own, so I did.”

Benoit traded a short-term techncial program at Stratford from 1995 to 2005 and produced some eye popping returns including a compound annual return of more than 35%, but decided to end the program after a difficult year in 2005. “The market was brutal, I’ve done it for 10 years, made pretty good money so I took a couple of years off,” Benoit says.

When he decided to launch a program in 2008 it needed to be different. “I did technicals for 10 years. I wanted to take a different approach, that is why I came back. I could have done technicals again but that is a very crowded trade, so I looked at the fundamentals,” Benoit says.

However, his approach to fundamentals is not typical. He will look at what sectors or individual stocks are leading the major equity indexes and using that information make a directional play on the index. “In the last six weeks semi conductors has been the driving force in the Nasdaq so I have been focused on them,” Benoit says. “Yesterday, the semis were leading on the upside; I took that as a buy signal.”

Benoit trades the Dow, S&P 500 and Nasdaq.


The approach has worked as Stratford is up 62.60% through August after dropping 14.12% in 2009 when financials led the equities. “If you see the market rising and the financials were stuck in the mud or going down, then I would sell the market. I would sell into that strength,” Benoit says. “I use whatever the sector is that is driving the market and I look for anomalies. Either it is leading or it is lagging and that is how I determine which direction I am taking.”Image

The program has performed well in up and down markets. It sometimes follows the trend and sometimes appears to be countertrend in nature. He did well in the volatile markets of May this year, only losing money on two days and even earning money on May 6 when the flash crash occurred.

Benoit says that what is leading can change often. “Prior to six weeks ago Apple was leading,” he says. The market would open lower and then Apple would move higher, which would trigger a buy signal in the index. “I would be buying in and then the market would move up,” he says.

He takes profits around the time the market matches the move of Apple or the stock of sector that is leading.

“When I have trouble it is when there is either nothing that is leading or lagging or if the futures is leading the market instead of the cash. I try and wait until I see something that gives me a signal. I wait for the market to tell me what to do,” Benoit says.

So far the market had been steering Benoit in the right direction.

For more on Stratford Capital Management including contact information, click here.

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