Even many of the short-term traders with strategies built to perform well in periods without sustained trends tended to struggle. The short-term traders that did well tended to be concentrated in niche sectors, trading stock indexes or currencies. It also helped to be discretionary. The Barclay Discretionary Traders Index was up 2.84%, while the Systematic Trades Index was down 3.77% and the Diversified Traders Index was down 5.61%.
“People who trade short-term diversified are very different,” says David Pere, whose short-term S&P strategy earned 65.91% in 2011. “For short-term traders trading 40 markets or so, they need all of them to be working over a period of time. Long-term trend-followers really can hit it hard with one sector,” Pere says, adding, “In the S&P it should have been a good year for anyone who trades against the trend.”
It was a choppy, volatile year, and those programs built to do well in that environment did so. “I do well when the markets are volatile; volatility helps me,” Benoit says, adding, “The other thing that helped me [in 2011] was not taking overnight trades.”
While it seems almost too obvious, the ability to book profits was key in 2011 because many sectors didn’t only display a lack of long-term trends, but reversed and chopped around on a daily basis. Holding a winning trade overnight held more risk than usual, especially with so much of the market volatility having to do with developments coming out of the Eurozone.
Fort L.P., one of Futures’ Top Traders of 2010, had a great year in both of its programs. While you might expect that their Global Contrarian program (up 28.69%) would do well in a bad year for trend-followers, its Global Diversified program, which is more trend-following in nature, had an even better year,
Fort co-founder Sanjiv Kumar attributed their success to sticking to their systematic approach, keeping things simple and their focus in the financial sector, particularly bonds. Their best performing sector was bonds, particularly the short-term interest rates. “You had a lot of compression of yields and that was a big driver for us,” Kumar says.
While it was a difficult year highlighted by choppy markets, Treasury markets did trend. Bridgewater, the massive institutional manager with a high concentration in interest rates, earned more than 25% in its largest fund.
For Clarke Capital Management, it was a mixed bag with its multi-time-frame Global Basic program returning 12.01%, but most of its other mainly trend-following programs were up or down marginally. Its Worldwide program dropped 25%, largely because of the Bank of Japan’s intervention on the day MF Global declared bankruptcy. Clarke President Chad Butler says it was a difficult environment with choppy markets throughout the year.
One positive mentioned by managers is that the recent environment seems similar to the last poor stretch leading up to 2008. “As we look back over [several years], you have these lulls in opportunity every so often and it tends to imply an even more opportune outcome when it is over,” Buckner says. “We are apt to see some [very] good opportunities [in 2012]. There is a long vol opportunity; we just have to be patient. We are overdue.”
Continue to the next page for our profile on Cranwood Capital Management...