As R.G. Niederhoffer had expected, he had a very rough July, so much so that it wiped out close to half of his returns for the year. Niederhoffer’s quant-style, very short term, low-correlation trading techniques were crushed as July rode on significantly less volatile compared to the previous two months. The fund thrives on volatile markets, so there was no good showing in the last month. Niederhoffer has been up in months when others have lost, and specifically in July, other hedge funds fared much better, so the bad returns are standing out.
He himself admits, “It is true, however, that our drawdowns tend to stand out more because they often occur when a lot of other people are doing well (as most strategies did in July). That is the curse, or blessing, of a negatively correlated strategy – and it is true for our best periods too.”
See July performance of Mitchell Julis’ Canyon Value Realization Fund.
However, he welcomed a son on August 14 (Congratulations!), and seems overjoyed, so all seems to be good.
“One of his worst months in quite some time”: Niederhoffer
Niederhoffer calls it “one of his worst months in quite some time”. The flagship Diversified program was down 11.3%, and assets of the fund fell from $532 million to $494 million. He explains that all his contrarian trades turned sour as stock markets rallied from the lows they had reached in June; the equity portfolio lost 6.2%, forex was down -3.2%, commodities lost 1.6%, and fixed income lost -0.3% primarily in European and Asian positions.
In other smaller allocations, the hedge fund lost equally. Negative Correlation Program was down 13.4%, Optimal Alpha Program was down 7.5% and iHedge Inflation Protection Program lost 9%.
Niederhoffer has done better this month
The funds had done exceptionally well in fixed income and forex strategies before July but gave back the gains as Fed retracted some of the hints it had been dropping about an imminent taper. As several hedge funds in the credit and macro space had a troubled August, predictably Niederhoffer has done better this month. He says that returns in the iHedge Inflation Program are already looking very good and reiterates that the strategies have been designed to do well in an environment with rising interest rates.