R.G. Niederhoffer Capital Management had a rough summer, losing money across the board in July and continuing to struggle in August (all August and 2014 figures are est. through 08/28), according to the most recent client letter, but Niederhoffer points out that the funds continued to offer diversification protection and that its flagship Diversified Program was up 0.6% during the July 25 – August 6 correction that pulled the S&P 500 (INDEXSP:.INX) down 3.9%, which he thinks will only become more relevant as QE comes to an end.
“If one is unwilling to make an all-in bet on a continued stock market rally, the only alternative is to consider ways of reducing long exposure, preferably in ways that have provided overall positive returns, as we have, rather than negative returns such as portfolio insurance,” he writes.
Carlson Capital's Double Black Diamond Fund returned 85 basis points net in August, bringing its year-to-date net return to 4.51%. According to a copy of the fund's September update, which ValueWalk has been able to review, its equity relative value and event-driven strategies outperformed during the month, contributing 131 basis points to overall P&L. Double Read More
RGN Diversified lost on equities in July
Niederhoffer’s Diversified Program with $384 million in assets fell 1.6% in July as equities lost 3.1% on low volatility for most of the month, offset by gains in Asian equities. Currencies were up 0.6%, fixed income was up 0.9%, and commodities were flat as gains in agriculturals (soybeans in particular) offset losses in metals and energy. The Diversified Program fund was flat in August and is down 2% YTD.
The longer biased Optimal Alpha Program ($24 million AUM) lost 0.6% in July and gained 0.3% in August, putting it up 5.2% for the year, while the iHedge Inflation Protection Program fund ($4 million) was down another 5.8% in July and 6.5% in August for a 22.9% YTD loss, which isn’t really surprising for an inflation hedge.
RG Niederhoffer has been an effective hedge against corrections this year
Niederhoffer also argues that even without attempting to call a market top, it’s clear that QE, slated to end next month, has been a significant factor behind market gains in the last few years and investors should take some measures to protect themselves from a correction. Comparing the worst drawdowns in the 2003 – 2008 period to those in 2008 – 2014 when QE was in effect, there were nearly twice as many 5%+ single day losses in the second period. The HFRXGL hedge fund index lost ground during almost all of those downturns, while the Newedge Trend Index was up 50% of the time in 2003 – 2008 and 44% of the time in 2008 – 2014 and Newedge CTA index was profitable 50% of the time in both time periods. For comparison, the RNG Diversified Program was up 50% of the time in the pre-QE era and 83% of the time in the last five years. Restricting just to 2014 drawdowns makes RGN Diversified look even better as a market hedge.