Key Takeaways
- • Managed futures hedge funds delivered an average return of 15.2% in 2014, significantly outperforming the broader hedge fund industry, which gained in the low-to-mid single digits, according to Societe Generale's Newedge unit.
- • Trend-following algorithmic strategies generated the strongest performance within managed futures, averaging 19% returns in 2014, as computer models capitalized on sustained price movements across futures contracts in stocks, bonds, currencies, and commodities.
- • Several large algorithm-driven hedge funds exceeded 30% returns in 2014, including Cantab Capital Partners ($3.8 billion AUM), Aspect Capital ($4.7 billion AUM), and Man AHL ($13.4 billion AUM), alongside strong double-digit performances from Two Sigma, Winton Capital, and Campbell.
- • Algorithm-led hedge funds recovered substantially from underperformance during 2011–2013, marking a decisive reversal in relative performance against discretionary and fundamental hedge fund strategies.
- • Managed futures funds benefited from "significant moves in a number of markets," according to James Skeggs, global head of Newedge's prime brokerage alternative investment advisory group, allowing trend followers to exploit directional opportunities.
Summary
Computer algorithm-driven hedge fund strategies significantly outperformed their discretionary, human-managed counterparts in 2014, marking a dominant year for quantitative investing across alternative asset management. Managed futures funds—which systematically trade futures contracts across equities, fixed income, currencies, and commodities—achieved an average return of 15.2% for the year, substantially exceeding the broader hedge fund universe's performance of low-to-mid single digits, according to data from Newedge, the prime brokerage division of Societe Generale.
Within the managed futures category, trend-following strategies demonstrated the most compelling results, generating an average return of 19% in 2014. These funds employ computer models designed to identify and capitalize on directional price momentum across multiple asset classes, with performance typically enhanced during periods when clear multi-month trends emerge. This performance represented a dramatic recovery for algorithmic strategies, which had significantly underperformed during 2011, 2012, and 2013.
The largest algorithmic hedge funds delivered exceptional absolute returns. Cantab Capital Partners, managing $3.8 billion in assets, Aspect Capital with $4.7 billion under management, and Man AHL, a $13.4 billion fund, all achieved returns exceeding 30% for the year. Additional prominent quant-driven managers, including Two Sigma, Winton Capital (whose founder David Winton Harding was featured in the coverage), and Campbell, also posted double-digit returns for 2014.
According to James Skeggs, global head of Newedge's alternative investment advisory group, the outperformance of trend-following strategies reflected favorable market conditions: "We've seen significant moves in a number of markets, and trend followers have been able to take advantage of them." The prevalence of volatility and directional moves across equities, bonds, and commodity futures created an optimal environment for momentum-based algorithmic strategies, which systematically exploit such patterns through quantitative modeling rather than discretionary judgment.
Within the managed futures category, trend-following strategies demonstrated the most compelling results, generating an average return of 19% in 2014. These funds employ computer models designed to identify and capitalize on directional price momentum across multiple asset classes, with performance typically enhanced during periods when clear multi-month trends emerge. This performance represented a dramatic recovery for algorithmic strategies, which had significantly underperformed during 2011, 2012, and 2013.
The largest algorithmic hedge funds delivered exceptional absolute returns. Cantab Capital Partners, managing $3.8 billion in assets, Aspect Capital with $4.7 billion under management, and Man AHL, a $13.4 billion fund, all achieved returns exceeding 30% for the year. Additional prominent quant-driven managers, including Two Sigma, Winton Capital (whose founder David Winton Harding was featured in the coverage), and Campbell, also posted double-digit returns for 2014.
According to James Skeggs, global head of Newedge's alternative investment advisory group, the outperformance of trend-following strategies reflected favorable market conditions: "We've seen significant moves in a number of markets, and trend followers have been able to take advantage of them." The prevalence of volatility and directional moves across equities, bonds, and commodity futures created an optimal environment for momentum-based algorithmic strategies, which systematically exploit such patterns through quantitative modeling rather than discretionary judgment.
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