R.G Niederhoffer gained back what it lost in May, the flagship Diversified program was up 2 percent in June, finishing the first half up 28.8 percent. Niederhoffer’s flagship fund has positive correlation with S&P 500 (.INX)’s volatility, he expects it to rise in the coming months which will prove to be good for its strategy. However for now the funds are having one of their worst months in over a year as markets are rallying in July and are at low levels of volatility. Probably that is why the monthly letter does not include MTD July returns, an update which is customary for the fund.

Niederhoffer Up 30 Percent Through June, but Having a Rough July

Profit and loss in June for Niederhoffer

Continuing on the streak of returns from USD/JPY trades, Niederhoffer gained from the position in June as well, however it was not the fund’s biggest mover. The fund took the largest gains in its US fixed income positions while losing in European fixed income assets. Unlike other hedge funds, Niederhoffer’s approach alternates between long and short strategies and therefore can take a boost from volatile pricing. But the fund was still not positioned for the sharp reversals that took place in European yields over last month.

The fund was also profitable in its US equity holdings which are basically long volatility trades. Niederhoffer was up when equity prices moved several times within a day, supporting its unique short term strategy.

Read Seth Klarman’s views on short term trading approach.

Niederhoffer’s Ultra short term strategy

Niederhoffer’s ultra short term strategies did well in last month, in fact the fund did its best work in there and detracted in long term approaches. Unlike ordinary CTAs where long term positions span over weeks and months, Niederhoffer’s long term holding is just a five day thing.

Roy Niederhoffer continues to prove his point that in a rising rates environment, that will dominate when taper materializes, CTAs will have a hard time applying their trend following strategies. He goes on to explain what will happen when both stocks and bonds dip at the same time, in his view CTAs don’t decline as much as ordinary hedge funds when such simultaneous crash happens. CTAs will perform better on a relative basis and will be profitable in their short positions.