08/21/2013

Winton Versus Peers: The Same, Only Better

The chief investment officer of Winton Capital has pointed out to investors that the returns of the flagship Winton Futures Fund are increasingly correlated to those of other large managed-futures vehicles.

In a letter reviewing Winton’s July results, Matthew Beddell digressed from the usual discussion of performance contributors to take a long view of the fund’s returns over the past 15 years. Specifically, he wanted to see how Winton’s performance stacked up against eight “major competitors” whose returns he averaged to create a composite index.

On the one hand, Beddell wrote, the resulting picture appears less than flattering. Over 15 years, Winton has averaged 77% correlation to its main competitors. But in the past five years, the correlation has shot up to 89%. “We all looked really very similar,” he observed.

At the same time, however, the gap between Winton’s performance and the composite of its peers has widened in favor of Winton: 3.3 percentage points in the past five years versus 1.5 percentage points over 15 years. This is all the more impressive, Beddell suggests, in light of the high correlation between Winton and the eight other firms, which manage a combined $55 billion.

“The outperformance would not be so significant if we were not so highly correlated,” he wrote.

In a rhetorical flourish, Beddell likened the array of managed-futures vehicles available to investors to paintings in a gallery. “So the message is: If correlation to our major competitors continues to be high, then you get minimal diversification benefit from hanging many CTA paintings in your gallery,” he concluded.

In other words, why invest with anyone else?

Winton’s performance last year was uncharacteristically poor, with the $9.6 billion Winton Futures Fund losing 3.6% in 2012, versus a 1.7% drop for the BarclayHedge CTA Index. The fund has returned to form this year, with a 3.6% gain as of July 31, compared to a 1.6% loss for the index. Since inception in 1997, Winton’s flagship has generated a 14% compounded annual return.

The London firm, founded by quantitative guru David Harding, manages $24.4 billion overall.

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