April was not a good month for quant funds. Hedge funds that rely on computer algorithms to make their investing decisions are often called quantitative or quant funds, and the sector had been on an historic, almost 18th month roll until April. But things went south fast for quant funds last month, with one of Cantab Capital Partners quant funds losing 9% in April, mainly because of European bond investments, according to an investor letter seen by Bloomberg.
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Quant funds had been on roll since fourth quarter 2013
Hedge funds that use computers and sophisticated statistical models to decide which securities to buy and sell have profited handsomely since the fourth quarter of 2013, and most even avoided loses on the Swiss franc’s sudden surge early this year. Analysts say that quant funds have taken advantage of long-running trends such as a rally in European sovereign debt and dropping oil prices, and both trends reversed in mid-April.
April was very bad month for quant funds
A number of quant funds suffered losses in April. Winton Capital Management saw its largest decline in 7 years in its main fund, and Aspect Capital, another so-called algo fund, had one fund suffer its largest loss in 13 years.
“There were some surprises in store for the last two days of the month, with a decent selloff in stocks, bonds and the dollar together with a rally in crude oil,” noted Matthew Beddall, Winton’s chief investment officer, in a recent letter to investors. Of note, the firm had a 4% loss in its futures fund in April, shrinking gains this year to a mere 0.5%.
The decline in European bonds was easy to see coming (in hindsight). Bond King Bill Gross sent out a Tweet on April 21 calling 10-year German bunds as the “short of a lifetime.” Alan Howard of Brevan Howard Asset Management chipped in a couple of days later saying it was “crazy” to hold debt with negative rates.
Not surprisingly, European bond prices cratered. The Bloomberg Eurozone Sovereign Bond Index was down 1.4% last month. April was the first down month for the index since December 2013.
Cantab was founded in 2006 and manages around $4.4 billion. The hedge fund firm lost money in bonds, equities and commodities in April, slashing annual returns in its main fund to 3.4%, according to the letter. Investors can’t complain too much, however, as the fund was up a fabulous 39% in 2014