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
© The Sortino Group Ltd
All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or scanning or otherwise, except under the terms of the Copyright, Designs and Patents Act 1988 or under the terms of a licence issued by the Copyright Licensing Agency or other Reprographic Rights Organisation, without the written permission of the publisher. For more information about reprints from AlphaWeek, click here.