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March 14, 2018  

Veteran Quant Manager Stumbles on Volatility

Quantitative Investment Management is off to a rough start this year, posting its weakest January-February returns in its 15-year history.

Its flagship fund, a systematic-macro vehicle dubbed Quantitative Global Program, fell 8.1% during the first two months of the year, losing 6.8% in February alone. A spike in market volatility early last month resulted in widely dispersed returns among macro funds, but those employing quantitative strategies generally fared worse than their discretionary counterparts. The HFRI Macro Systematic Diversified Index declined 6.5% in February, while the HFRI Macro Discretionary Thematic Index dipped just 0.2%.

Quantitative Global Program, which accounts for more than half of the firm’s $4.3 billion of gross assets under management, uses algorithms developed by co-founder Jaffray Woodriff to detect patterns in the price movements of financial futures. Since inception in 2003, the vehicle has had three down years — with losses of 3.1% in 2010, 0.4% in 2013 and 12.3% in 2014 — versus seven years of double-digit gains. It rose 7.4% last year, 16.7% in 2016 and 20.8% in 2015.

The last year QIM’s flagship offering fell 5% or more during the first two months of trading was 2012, when it ended February down about 6%. The vehicle finished the year with a 4.6% gain.

Its steepest one-month loss was 7.6% in January 2008. But it rebounded the next month with a 5.3% increase, and finished 2008 with a 12.5% gain — compared to a loss of about 19% for hedge funds on average. As of Feb. 28, Quantitative Global Program was showing an 8.9% annualized return.

QIM also offers leveraged versions of its flagship fund, including one that employs three-times leverage. That vehicle plummeted 20.5% in February, for a year-to-date loss of 23.8%. But its annualized return is still above 20%.

In addition to its global-macro offerings, QIM runs a systematic long/short equity vehicle, Quantitative Tactical Aggressive Fund, with about $1.1 billion of gross assets. It suffered a one-month loss of 24.6% in February, for a year-to-date return of minus-22.6%. The fund has generated mostly stellar annual returns, including gains of 60.5% last year and 28.4% in 2016. Since inception in 2008, Quantitative Tactical Aggressive Fund has produced an annualized return of 18.9%.

All of QIM’s funds have an unusual fee structure: Limited partners pay no management fee but give up 30% of their profits as incentive compensation for the manager. Woodriff leads the Charlottesville, Va., firm with co-founders Michael Geismar and Greyson Williams.