Winton Expands Amidst Difficult Market Environments

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Caught in the middle of one of the worst market environments in the history of managed futures, Winton Capital, the largest true managed futures fund and the fourth largest hedge fund in Europe, is aggressively expanding.

From one perspective, Winton’s 2013 performance in its diversified fund, +7.98% net of all fees, is below its historical norms, which is one reason the fund is so successful: its generally acceptable performance during negative market environments.  In 2013, for example, the BarclayHedge BTop 50, a measure of the largest managed futures funds, was up only +0.74%.  Since the Diversified Fund was founded in 1997 it has had only two losing years, with the worst yearly loss at -5.38% in 2009.

Winton’s entry into US mutual fund market could be a game changer

With the ability to generate performance in a variety of market environments, Winton has expanded its product offering and now, for the first time, is opening sales offices in the US.  According to a report in the Wall Street Journal, Winton plans to open offices in New York, Tokyo and Sydney and is planning five new funds.  Speculation is two of the funds will be traditional “40 Act” mutual funds targeting the US market, competing against a variety of managed futures mutual funds. The mutual fund has been considered to be a catalyst to bring managed futures into the mainstream of US investing, and Winton offering direct access without significant additional fees into one of the most respected managed futures funds in the world could be a game changer.

Managed futures legend

Winton was founded by David Harding in 1997, who announced he is taking back the reigns of the firm as its CEO Tony Fenner-Leitão recently resigned.  Harding was among the original trend followers, first gaining experience at the famous Man AHL trend-following hedge fund in London, where he was the “H” in the name.

Harding left AHL in the late 1990s and went on his own, forging a new path in several respects.  While many of the original trend followers stayed true to the core concept behind the trading strategy, Winton hired numerous quantitative scientists and expanded his fund’s algorithms to include strategies other than trend following that correlated to different market environments.  While the algorithms are confidential, informed speculation is that Winton’s algorithm has a computerized system that determines the market environment and then selects an algorithm that is best suited for that market environment.  Two of the anchor strategies among 100 or so algorithmic trading formulas used are said to correlate to the market environments of price persistence and divergence / convergence to a mean.

Winton, which had $258 million in net income on $540 million in 2013 according to the report, has nearly $25 million under management and Goldman Sachs Group’s Petershill fund is nearly a 10% owner of the stock.

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