AQR Delivers Mixed 2013 Performance; Managed Futures Was Rare Star

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AQR Capital Management had mixed results in 2013, with the firm’s managed futures and arbitrage funds posting gains while its commodity fund found difficulty, according to an investor’s letter reviewed by ValueWalk.

AQR: Managed futures shining star

The AQR managed futures program, up just over 9% in 2013, significantly outpaced the benchmark Newedge CTA index, which was up just -0.73% on the year.  The fourth quarter was the key for the fund, generating nearly 7.4%.  Breaking down the fund’s fourth quarter performance by asset class, equities contributed +2.73%, commodities contributed +0.21%, currencies contributed +4.74%, and fixed income detracted -0.26%. By signal, short-term trend-following contributed +0.50%, long-term trend-following contributed +8.37%, and overextended trend signals detracted -1.45%, the investor letter said.

“We believe this quarter highlights the importance of our fund construction, which emphasizes diversification across asset classes as well as diversification across signals,” the investor letter said. “On an asset-class basis, currencies, commodities, and equities were profitable, overcoming losses in fixed-income markets. By signal horizon, long-term signals contributed strongly, while short-terms signals led to additional small gains.”

Flat arbitrage performance in stale market environment

In 2013 the arbitrage strategy was not quite the same shining star in the AQR family, generating just under a 2% return on the year.  “It was an extremely quiet quarter for corporate arbitrage,” the investor letter noted, pointing out that “the largest loss at the individual holding level was only 20 basis points, the result of a merger failure which generally triggers a much steeper loss.”  For the full year, the gain of 1.75% was spread across strategies: merger arbitrage contributed 0.77%, convertible arbitrage contributed 0.43%, event-driven credit contributed 0.20% and remaining strategies contributed 0.35%. The gains were attributed to successful deal closings in a stable and tight-spread environment. “Deals generally closed on time and without major disruptions.

“The contribution from convertible arbitrage largely stemmed from modest richening of the convertible securities in the portfolio. The convertible richening appears to be driven by inflows into non-arbitrage convertible funds and has resulted in the pricing of some bonds above fundamental value,” the letter said. “When this occurs, we sell the richly-priced convertible and reallocate the capital to cheaply-priced convertibles.”

AQR: Long commodity plays found difficulty

While the managed futures strategy was nicely above an industry benchmark, AQR Risk-Balanced Commodities Strategy Fund Class I (MUTF:ARCIX) fund found difficulty, down nearly -16% in 2013 while the Dow Jones-UBS Commodity Index (INDEXDJX:DJUBS) was down 9.52% on the year. Unlike the managed futures fund, the commodity fund’s mandate is to maintain a net long position over the course of the portfolio, although it can go long and short. 

A key component in the fund’s 2013 performance slide was precious metals, as gold and silver fell by -9.4% and -10.9%, respectively, driven by the Fed’s decision to taper stimulative bond purchases, the investor letter noted.  Base metals were mixed but appreciated on average, driven by stronger US economic data. Agricultural commodities were another contributor to fund loses, as they depreciated on average throughout the fourth quarter, particularly corn and wheat. Global supply outlook was extremely bearish for both grains on expectations of a record setting harvest. Soybeans and soybean meal, on the other hand, appreciated on reports of increasing US demand, the letter noted.

While oil and oil products in general were buoyed by stronger global economic data, WTI crude was the exception, dropping on record US production and rising stockpiles. Natural gas was the strongest performing energy in Q4, appreciating 9.4% on extreme cold weather throughout the country, which boosted heating demand. In Q4, precious metals was the most significant sector, detracting -1.3% from the portfolio. Base metals detracted -0.2%, energies +0.8%, grains -0.9%, softs -0.8%, and livestock -0.1%.   

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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