Hamer Trading appears to be a basic, solid, diversified, long-term trend-following commodity trading advisor (CTA). A program you think would have garnered more assets until you realize that it is one of those overlooked trend-followers that allocators avoid, despite strong returns, as they invest with established managers and then look for alternatives to trend following. That is until you see its 2011 performance. Hamer earned 24.97% in a year that saw most CTAs struggle, particularly those classified as long-term trend-followers.
When you dig a little deeper, things get even more complicated. See, Jim Hamer, principal of the firm, initiated some short-term and countertrend elements in the early 2000s after getting tired of being told by various allocators that they don’t need any more exposure to trend-following. “I went to a [Managed Funds Association] conference and was told by an allocator that he would be interested after I had $5 million under management and a five-year track record, unless I was a trend-follower, in which case he would probably not be interested at all,” Hamer says.
Hamer was disappointed because his program had performed well: 25.63% in its first full year in 2000 and 20.42% in 2001, a generally poor period for trend-followers. “We consistently had made money,” he says, but based on what he heard, he decided to make changes, “working in short-term and countertrend systems from 2001 to 2007.”
The funny thing is that it was these elements that underperformed, particularly in 2004-06, a tough stretch for CTAs and the only three negative years in the 13-year history of Hamer’s program. “We still had long-term trend-following as a part of the program but it wasn’t the majority of the program. We lost money in ’05 and ’06 and began reviewing things. The only thing that held up over time was the long-term trend-following,” Hamer says.
Near the end of 2007, Hamer jettisoned the other stuff and improved on the long-term trend system. From 2008 on, the program produced a compound annual return of 24.61% with a worst drawdown of 13.41%. A period that included two of the five negative years for the Barclay CTA Index, 2011 was the worst.
“We got rid of all the short-term and intermediate stuff and began focusing 100% on long-term trend-following in ’08 —granted ’08 was like a perfect storm — but we did great.”