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June Trend Following Performance Kills It

Trend following performance rock and roll for June (source):

Sector titans ride Brexit to record largest monthly gain since November 2014, SocGen benchmark shows

London-based trend manager Mulvaney Capital Management surged 27.4% as one of the standout CTA performers in the wake of the Brexit vote.

The $224m London-based manager, founded in 1999 by CEO and CIO Paul Mulvaney, a former Merrill Lynch options trader with computer science background, takes a long-term approach to capturing trends, holding positions for six months on average.

Its Global Markets Program was reportedly up 17% on Friday 24 June as global stock markets tumbled and the pound fell to a 31-year low after the Brexit vote, marking its best day ever.

The program, which has an annualised volatility of 31% was also the standout performer in Europe in 2014, gaining 67% as CTAs had a stellar year amid tumbling oil price and sinking bond yields.

Mulvaney’s return last month recovered earlier losses this year to advance to 15.1% YTD.

Switzerland-based Amplitude Capital saw strong gains, with the firm’s $929m Klassik fund returning 9.98% for June.

Amplitude’s $540m Dynamic fund also saw monthly gains, returning 7.19% with 3 out of 4 asset classes contributing to this result.

Among smaller managers, New Jersey-based NuWave Investment Management also had a strong month, with its main $36m futures portfolio gaining 13.3% in June having been broadly flat YTD at the end of May.

The largest CTAs recorded their biggest monthly gain since November 2014, according to Societe Generale’s benchmark.

The SG CTA Index, which tracks a group of the largest 20 CTAs, ended the month up 4.4% to return to positive territory for the year, up 4.1% YTD.

Among the best performing constituents of the index, Transtrend’s $4.8bn enhanced risk version of its Diversified Trend Program surged 7.5% to hit 8.4% YTD.

Lying flat YTD coming into June, Brummer-backed Lynx Asset Management was up an estimated 10.3%, likely to go down as the $6.3bn Swedish manager’s best month since August 2010.

London and US-based ISAM saw its $1.4bn Systematic Trend program gained an estimated 4%, to pare back YTD losses to -3.2%.

Trend-followers jumped 5.3% in June, according to the SG Trend Index.

It was their best month since August 2014, and they hauled themselves back into the back this year, up 1.9%YTD.

Short-term traders advanced 1.6% in June to remain the best performers this year, up 5.8%.

For Sydney-based Boronia Capital, June was best return since a 10.2 gain in May 2012. The $842m manager was up 5.7% last month to climb to 9.7% YTD.

Quest Partners’ $325m AlphaQuest Original Program was up 6.6% in June and advanced to 18.3% this year. It scored its bets returns through vol breakout systems.

The SG CTA Index had surged 2.3% on 24 June, the day after the UK’s EU referendum. It was its best one-day gain since a 2.7% jump on 20 December 2000, when the Nasdaq plunged after a flurry of analyst downgrades and corporate results drove US technology stocks sharply lower.

Eighteen of the managers in the index made positive returns on 24 June. A similar number reported positive returns for the full month.

Performance figures announced last week showed that CTAs weathered Britain’s EU referendum result well, despite mid-month market uncertainty, having benefitted from diversification across asset classes and positioning.

“CTAs have, so far, managed to weather the Brexit storm by benefitting from diversification across asset classes and positioning,” said James Skeggs, global head of alternative investments consulting at Societe Generale Prime Services.

“The strong returns seen in June were the result of trends in bond, commodity, and currency markets.

Attribution data from the SG Trend Indicator suggests gains in the bond (+4.6%), commodities (+1.1%), and currency (excluding GBP/USD +1%) sectors.

Skaggs added: “In the current environment there is understandably a great deal of investor interest in these strategies which have posted positive returns in eight of the last nine quarters.”

Next Brexit? Are you ready?

Trend Following on Stocks: A Long History

An excerpt from Trend Following:

One of the great myths regarding trend following is that it does not work with stocks. That is wrong thinking. Trends in stocks are no different than trends in currencies, commodities, or futures. Chesapeake Capital, Jerry Parker’s trend following firm, for example, has adapted its system to stock trading. Parker says his system works well with stocks, particularly stocks in outlier moves that are in single industries. He adds:

“Our expertise [is] in systematic trend following or model development. So maybe we trend follow with Chinese porcelain. Maybe we trend follow with gold and silver, or stock futures, or whatever the client needs. We’re trading these great systems, and testing, and making sure what we do has worked in the past. And being disciplined, and unemotional, and applying our methods to the futures markets, but limiting our trading to this one group of markets. We need to look at the investment world globally and communicate our expertise of systematic trading.”

Bruce Terry, a disciple of Richard Donchian, dismisses out of hand that trend following is not for stocks:

“Originally in the 1950s, technical models came out of studying stocks. Commodity Trading Advisors (CTA) applied these to futures. In the late 1970s and early 1980s, stocks were quiet and futures markets took off. That is how the CTA market started. It has come full circle. People are beginning to apply these models to stocks once again.”

I am reminded of the opening line from a 1979 article from “Managed Account Reports” that I found in research: “Trading stocks and commodity futures by means of trend following techniques is an art with a long history.”

Some recent feedback from a listener:

I read your book, “Trend Following” and I liked it very much. I started trend following before I even knew it was a thing. In the beginning of my trading experience I made a good amount of money trend following stocks but it quickly fell apart and led to huge losses. I don’t make very much money but in a few months I lost like 2k. At which point I came to the conclusion that it doesn’t work for stocks. I gave up and just use the old blue chip buy and hold. I suppose if it ever dramatically dropped I would sell but I think that’s not really trend following, it’s blue chip buy and hold and stocks seems more like a savings account than anything. It was a crushing blow that it didn’t work and basically killed my dreams.

I found out about Forex through the book and started trading it a couple of weeks ago. I like it better than stocks and thought trend following might work there since it would appear that there are strong trends. However, I lose even more money in Forex. Not to be a downer but I’m not convinced that trend following works at all. But who knows maybe there is some market somewhere that trend following would for but I haven’t seen it. If I set my stops small I don’t lose much per trade but I rarely gain money and the small losses add up. If I set my stops large to get around volatility I can make money but it usually turns against me and a small gain is a huge loss in a heartbeat. Who knows maybe there is some voodoo magic involved? Have a nice day and your book was very entertaining.

Cheers,
[Name]

Thanks for the feedback. Some resources for skeptics:

trendfollowing.com/start
trendfollowing.com/faqs
trendfollowing.com/translations
trendfollowing.com/products

Patiently go through that and you will have answers.

Did he write back? Yes. He complained that was not enough.

Up and Down
Up and Down

Trend-following hedge fund strategies lead performance in 2016

From FT.com:

“If you believe we are going to have a bear market, CTAs [aka trend following] will have a chance to make money in that environment, and in the meanwhile they offer non-correlated returns.”

And:

Such “systematic” funds [aka trend following], which surf trends using financial models and algorithms, do well whenever there is a clear direction for markets. Down markets are as good as uptrends, so long as they are clear, and in January and most of February, financial uncertainty proved profitable.

And:

Ewan Kirk, chief investment officer for Cantab Capital, said “while there is no such thing as a ‘typical’ systematic manager, many managers in our space have been short energies and long bonds since the beginning of the year”.

Full article. Making money in a Black Swan Market.

Leda Braga
Leda Braga’s Systematica, which oversees $10.2bn, returned 9.9 per cent through the end of February, fuelled by bets on fixed income and against energy and equities.

You don’t want volatility? That’s ok. It’s all a trade-off.

A fascinating trend following track record:

Mulvaney Capital
Mulvaney Capital

That chart always makes me recall a moronic line from Ben Stein: “If you made money in October 2008 you were doing something wrong.”

You don’t want volatility? That’s ok. It’s all a trade-off. The big question: Can you imagine something like October 2008 happening again and what will you do?


Disclaimers

Trend Following™ can not promise you will earn the returns of traders, charts or examples (real or hypothetical) stated. All past performance is not necessarily an indication of future results. Data presented is for educational purposes. Our products are also provided for informational purposes only and should not be construed as personalized investment advice. All data on this site is direct from the CFTC, SEC, Yahoo Finance, Google and disclosure documents by managers mentioned herein. Trend Following™ assumes all data to be accurate, but assumes no responsibility for errors, omissions or clerical errors made by sources.

Our testimonials are the words of real clients received in real correspondence that have not been paid for their testimonials. Testimonials are sometimes printed under aliases to protect privacy, and edited for length. Claims have not been independently verified or audited for accuracy. We do not know how much money was risked, what portion of their total portfolio was allocated, or their exact positions. We do not claim that the results experienced by such clients are typical and you will likely have different results.

Trend Following™ is not registered as a securities broker-dealer or an investment adviser. This information is not designed to be used as an invitation for investment with any adviser profiled. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund.

Further, Trend Following™ cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing.

Additionally, Trend Following™ in no way warrants the solvency, financial condition, or investment advisability of any security or instrument. In addition, Trend Following™ accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as a basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

Ep. 378: Embracing Failure with Michael Covel on Trend Following Radio

Embracing Failure with Michael Covel on Trend Following Radio
Embracing Failure with Michael Covel on Trend Following Radio

Subscribe to Trend Following Radio on iTunes

On today’s show Michael Covel vents some of the frustration he’s been feeling over the past few weeks. Central to his discussion is the idea of failure, and how the vast majority of people are unable – or unwilling – to accept how vital it is to overall long-term success.

Michael opens by pointing out that most people today seem to be under the delusion that someone will always be there to take care of them. This, as Michael explains, is by design. Government and the talking heads of the media want the average citizen to be soft, dependent, and unwilling to take risks. Safety and security, according to the official line, should be valued above all else (even if it is all an illusion).

But this line of thinking doesn’t account for the truly successful of the world. Those who’ve risked everything and succeeded – specifically because they failed and learned from their mistakes. Success requires tenacity and dedication, but neither are required if you don’t take a risk in the first place. Because if you never take a shot, you’ll never hit the target.

In this episode of Trend Following Radio:

  • Understanding that success requires failure
  • Seeing past investment myths
  • Recognizing that no risk means no profits
  • Understanding that there’s no such thing as a perfect strategy
  • Shattering the notion that someone will always take care of you
  • Accepting that there are no guarantees

“I’ve failed over and over and over again in my life. And that is why I succeed.” – Michael Jordan

Mentions & Resources:

Listen to this episode:

Get the foundation to making money in up, down and *surprise markets on the Trend Following mailing list.

Ep. 377: Annie Duke Interview with Michael Covel on Trend Following Radio

Annie Duke
Annie Duke

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Today’s guest is author, entrepreneur and professional poker player Annie Duke. Michael Covel and Annie Duke discuss several of the countless ways in which the psychology of gambling overlaps with that of trading, investment and other aspects of business.

Annie explains the importance of thinking probabilistically for decision-makers. Gamblers, like investors, can sometimes become so focused on their losses that it begins to affect their decision-making process in a negative way. Annie calls this “tilt” and says it occurs when players put too much emphasis on outcome. She points out that so long as you are getting an overall return on your investment via a positive expectation, small losses should be both expected and absorbed.

Michael and Annie also discuss further in depth expectancy and how the top minds in both trading and gambling think about the long-term. When involved with risk, it is always important to think realistically. If there is a 90% chance of success, don’t round it up to 100% simply to boost your confidence. This way, if the venture fails, you won’t feel the need to discard your strategy since there was always that 10% chance of failure. Overall, your odds of success are still very good. This is why Annie’s thinking is so important for all of us.

In this episode of Trend Following Radio:

  • Focusing on the process instead of the outcome
  • Understanding that it’s about your return, not you winning percentage
  • Recognizing that in investing, consistency is unnatural
  • Thinking probabilistically
  • Maximizing your expectancy
  • Understanding that a loss doesn’t necessarily reflect bad thinking

“When you focus on outcome over process you actually reduce innovation in your company.” – Annie Duke

Mentions & Resources:

Listen to this episode:

Get the foundation to making money in up, down and *surprise markets on the Trend Following mailing list.

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