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Predicting Hedge Fund Performance In August

In my first post on AlphaWeek a month ago I reviewed the performance of hedge funds in the first half of 2019 and used factor-based proxy indices to forecast July returns for the Barclay Hedge Fund and CTA Indices before the official numbers become available. In this post we want to update the YTD totals, review our forecast, and make a new forecast for August.

Regarding the July forecast, I estimated returns of approximately +1% for the Barclay CTA Index and +1.5% for the Barclay Hedge Fund Index. The official numbers came in at +0.98% about a week later (and have since came down to 0.89% as more managers have reported their returns) for the CTA index, and +0.44% for the Hedge Fund Index (since revised to +0.52%). So, our factor-based CTA forecast was very, very close, and the hedge fund forecast has overshot by a percentage point. I'll adjust the model and see if I can get a more accurate reading in August.


In August we see a slight drop in performance caused by a pretty sharp drop in the markets that happened in the last / first couple days of July / August respectively. Overall, equities have lost more than 3% in those few days and that has negatively impacted hedge funds as well. From there the trend was positive through most of the month, but it was not enough to offset the early loss, and we see CTAs closing the month at approximately -0.5%, while hedge funds are positioned for a larger loss of approximately 1% for August.


Also very noticeable in August is the jigsaw movement of the equities. Such short term reversals are never good for trend followers, and if this pattern continues, hedge funds may find themselves losing more money.

Please feel free to reach out if you have comments and for those of us in the States - Happy Labor Day!

Dmitri Alexeev is Co-Founder of AlphaBot

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