Laurence Fletcher of Reuters writes “Black Box” Hedge Funds Profit in Volatile Markets”:
LONDON (Reuters) – Hedge funds run by sophisticated computer programs are profiting from large falls in stock markets and a rocketing gold price this month, even as funds managed by human beings struggle to cope with high market volatility.
Insiders say so-called managed futures funds [read: trend following], which try to latch onto market trends, are making money from declining bond yields and falling equities, as investors seek safe havens amid the eurozone debt crisis and after the U.S.’s credit rating downgrade.
These “black box” funds are up 4.2 percent so far this month, according to Hedge Fund Research’s HFRX index, while the average hedge fund is down 4.0 percent and managers betting on rising and falling stock prices have lost a hefty 7.3 percent on average.
Why does he use the word “black box”? If he was just “reporting” he would not immediately use a pejorative to describe trend followers like Winton. Bottom line, trend following is making a killing because it is sound trading strategy that performs especially well when the rest of the world ***** their pants. Why is THAT still news after all these decades?
Aug 25th Note: I asked Laurence why he used the term. His reply:
Hi Michael, thanks for your email. I’ve used ‘black box’ as a quick way to describe to the man on the street what computer-driven funds do. Why do you ask?
I asked back, “But how does that tell them? Meaning, how does the word black box tell folks what Winton does?” No word yet.