Clarke: Maintaining excellence
We try not to repeat our Top Trader choices as there are a multitude of talented managers in the CTA world. However, given the dreary overall performance in 2012, it is hard to ignore Clarke Capital Management, despite them having been highlighted multiple times over the years, for consistency in producing solid non-correlated returns.
Clarke’s Global Magnum program earned 53.32% in 2012 and five of Clarke’s seven primarily trend-following programs earned double digits in the second worst year for the Barclay CTA Index. Also five of the programs, some of which go back 17 years, have produced compound annual returns in the teens or better. Global Magnum has a concentration in interest rates and currencies and earned double digits in February, March and May 2012.
The performance is timely as the firm is going through a transition with founder Michael J. Clarke stepping back from day-to-day operations and letting others manage the strategies he carefully designed over the years.
It is no accident that Clarke’s models have held up. In addition to creating robust systematic diversified strategies, Clarke built into to his models ways to continually optimize the strategies by weighting them based on more recent data, yet still incorporating 50 years of testing. This is not done in an ad hoc fashion but in a systematic way that gives the firm confidence to stay the course even amid the inevitable drawdowns.
The CTA was purchased by the John O’Brien family three years ago. Chad Butler became president of Clarke and is in charge of operations. In May 2012 John O’Brien Jr. took the role of CEO and Michael Clarke transitioned to chairman.
Butler says the 2012 performance is proof that the robustness of the strategies can be carried forward.
He says the task of moving over all the model code to the new entity is complete and now it is more about, “downloading all the data from Michael’s brain.”
A large task in its own right as Clarke built the models on his own and has always worked relatively independent of the larger CTA space, ensuring the uniqueness of his models.
Clarke created hundreds of models and built his seven trading strategies by bundling many of them together and applying them to a diversified group of markets. He built risk management overlays for each system and applies his “fuzzy logic trend filter” that eliminates many of the signals for each strategy.
In that regard, Clarke is similar to the small group of trend-followers able to find profitable trades in 2012 by using risk management filters to find only the best signals.
“We spent a significant amount of time with Michael going through the genesis of his models — his biggest concern is managing those models,” Butler says. “He doesn’t want to have style drift. Michael’s philosophy was not to go in there and make any material changes. We are managing the models the same way.”
Butler says they are working on creating an institutional program based on existing models with the same robustness of the current strategies but with less volatility. He says having the O’Brien brand and John Jr. heading up the firm will be an asset in creating and marketing institutional products. “We have strong relationships in place that will [minimize] the counterparty risk from the standpoint of the investor,” Butler says.
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