Revenge Of The Managed Futures Quants

Trend following managed futures funds have outperformed hedge funds this year, gaining 8.9 percent year-to-date (see WSJ article). Hedge funds have lost almost 19 percent during the same time frame. Managed futures funds often use quantitative trading algorithms to spot market trends, at which point a long or short position is quickly taken in futures or other derivatives. Managed futures underperformed between 2003 to 2007 when volatility was lower, but have since done better as volatility increased. The ability to quickly initiate an "unemotional" short selling signals has also added to recent gains. Ironically, the reduction of risk by some traders and hedge funds has resulted in less liquidity and larger price swings, both of which have allowed managed futures to outperform hedge funds who have traded in many of the same markets.