Key Takeaways
- • Managed futures funds delivered average returns of 15.2% in 2014, substantially outperforming the broader hedge fund industry average of low-to-mid single digits, according to Newedge data.
- • Trend-following strategies—which use computer algorithms to exploit price movements across stocks, bonds, currencies, and commodities—posted average gains of 19% in 2014, marking the strongest hedge fund category performance.
- • Algorithm-driven investing strategies recovered the majority of losses sustained during 2011–2013, demonstrating the cyclical resilience of systematic, rule-based approaches relative to discretionary management.
- • Computer-led managed futures funds outperformed traditional hedge fund categories including equity stock pickers, distressed debt strategies, and macro-focused managers in 2014.
Summary
The performance divergence between algorithm-driven and discretionary hedge fund strategies widened substantially in 2014, with systematic managed futures funds delivering returns that exceeded traditional human-managed competitors by a significant margin. According to Newedge, a Societe Generale unit, managed futures funds achieved average returns of 15.2% for the year—a performance level that surpassed virtually every competing hedge fund strategy tracked across the industry.
The strongest performance came from trend-following managers, which employ computer models to identify and capitalize on directional price movements across multiple asset classes. These funds posted average gains of 19% in 2014, representing the top-performing hedge fund category. Trend-following strategies operate on predetermined algorithmic rules that detect multi-month price patterns, removing emotion-driven decision-making from the investment process. By contrast, the overall hedge fund industry, as measured by HedgeFund Intelligence, generated returns in the low-to-mid single-digit range for the same period.
The 2014 results marked a significant recovery for algorithm-based strategies, which had underperformed or struggled during the 2011–2013 period. The resurgence of managed futures highlighted the cyclical nature of systematic investing, where rule-based approaches exhibit periods of outperformance aligned with market conditions that reward trend identification and momentum capture. This performance trajectory suggests that institutional investors and family offices may be reassessing allocations toward quantitative and algorithmic strategies as alternatives to traditional discretionary management approaches.
The broader takeaway for institutional investors centers on the persistent structural advantage of removing behavioral bias from portfolio construction. While trend-following strategies do not require human execution, the systematic application of computer-driven models to futures markets across global equities, fixed income, currencies, and commodities continues to outpace gut-driven investment decisions by experienced managers.
The strongest performance came from trend-following managers, which employ computer models to identify and capitalize on directional price movements across multiple asset classes. These funds posted average gains of 19% in 2014, representing the top-performing hedge fund category. Trend-following strategies operate on predetermined algorithmic rules that detect multi-month price patterns, removing emotion-driven decision-making from the investment process. By contrast, the overall hedge fund industry, as measured by HedgeFund Intelligence, generated returns in the low-to-mid single-digit range for the same period.
The 2014 results marked a significant recovery for algorithm-based strategies, which had underperformed or struggled during the 2011–2013 period. The resurgence of managed futures highlighted the cyclical nature of systematic investing, where rule-based approaches exhibit periods of outperformance aligned with market conditions that reward trend identification and momentum capture. This performance trajectory suggests that institutional investors and family offices may be reassessing allocations toward quantitative and algorithmic strategies as alternatives to traditional discretionary management approaches.
The broader takeaway for institutional investors centers on the persistent structural advantage of removing behavioral bias from portfolio construction. While trend-following strategies do not require human execution, the systematic application of computer-driven models to futures markets across global equities, fixed income, currencies, and commodities continues to outpace gut-driven investment decisions by experienced managers.
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