Sverre Rørvik Nilsen, a financial consultant in Oslo notes that Norwegian Warren Short Term Trading (WST) is one of the best performing hedge funds in the world.
With restrictive regulatory requirements and uniformly long-only focused investor community, Norway is not considered a hotbed for hedge funds. Though there are only a handful of hedge funds managed out of Norway, the Warren Short Term Trading has returned over 46 percent since its inception in November 2011.
The fund is managed by Warren Capital’s CIO Mr. Peter C. Warren who has over 30 years of experience in the financial markets. The following snapshot of quarterly report for Q1 2013 amplifies Sverre Rorvik Nilsen’s view:
How this hedge fund invests
WST hedge fund manager provides some clues on reasons behind this strong performance. Markets are known for creating noises for any temporary influences. Unlike Warren Capital’s other funds, they do not try to separate the signal from the noise in WST. They instead focus on spending time for creating mathematical and statistical models meant to uncover short-term human behavior.
Most hedge funds typically own assets over a period of time. On the contrary, WST follows a different strategy in that they rarely own assets longer than a few minutes or sometimes even a few seconds. The asset manager thus holds zero assets at the end of each trading day and he starts from scratch again next morning by exploring tiny opportunities in the markets using a variety of skills and tools such as correlations, math and experience.
The fund would have been the 10th best performing hedge funds in the world last year, had the fund was tracked by hedge fund-tracking firm SYZ. Interestingly, HSBC Holdings plc (NYSE:HBC) (LON:HSBA)’s hedge fund tracking report yields a similar result.
When viewed from non-hedge fund perspective, the fund is running on very low risk, with a Sharpe ratio of 5.8 and an annualized standard deviation of 4.7 percent. Despite limited risk, the fund is still offering excellent returns.
This year there are over 11,000 hedge funds. Last year the average hedge fund returned only 6.2 percent, down from almost 20 percent posted during the heyday 1990s.
With considerable demand from investor in the fund, currently they are constrained to soft-close it.
According to their first quarterly report, WTT’s hit ratio remains high but with average losses being higher than the average gains. The reason ascribed being market currently providing a high frequency of a certain type of signal. However they feel this particular signal was profitable 88 percent of the time in the last quarter.
The fund manager indicated in the recent quarterly report that their system for cross asset correlation trading is up and running and has been profitable. They committed to enhance their performance tools in the coming quarters.
Interestingly the final ranking and winners of the inaugural Nordic Hedge Award will be announced on April 24, 2013. The Best Nordic Hedge Fund award across all categories will be fought out by Capricorn FXG 10, Danske Invest Hedge Fixed Income and Midgard Fixed Income Fund along with Warren Short Term Trading. Hopefully this award might validate the niche strategies adopted by WST.