Quant Methods Unscathed?

Terry Flanagan

While 2011 was not particularly kind to alternative strategies, those employing short-term market, count-trend market plays may shine in 2012.

At year’s end in 2011, managed futures were up nearly 2% compared with long-time popular and traditional hedge fund strategies, such as long/short equity. Long/short managers were down nearly 3%, according to the Dow Jones Core Hedge Fund Credit Suisse Index.

The strategy, characterized by its dogmatic use of quantitative systems and technical analysis to provide uncorrelated returns may also prove to be a good choice in 2012. The year ahead is predicted by many to be more of the same: continued market conditions of volatility and uncertainty.

In answer to the market’s sentiment for contrarianism, investors are especially calling for equity strategies that buck the general trend of constant volatility. As such, providers of alternative portfolios have been wildly popular among institutions and private wealth investors.

Denver-based 361 Capital’s long-standing Capital Systematic Index has held a ten plus year track record of providing counter-trend equity strategy. The index systematically generates technical indicators against price and volume trends on equity indexes; the pinnacle of the market’s volatility as of many recent months.

“Given the nature of our model, the historical returns of the 361 Capital Systematic Index has an extremely low correlation to the general equity markets,” said Brian Cunningham, president and chief investment officer of 361 Capital. “As a result, the index provides investors with an excellent tracking mechanism to a systematic counter-trend equity strategy.”

The index, which was established in 1999, is 361’s premier product. In keeping with its systematic nature, the index takes long, short and cash positions in the Nasdaq 100 Index and has reported an average annual return of upwards of 30%, compared with just 6% reported by the Dow Jones Credit Suisse Managed Futures Index.

Yet trend following is not always particularly fruitful. Cunningham puts emphasis on short-term trends in 2012.

“2012 could be difficult for intermediate to longer term trend followers; we believe that a short term counter trend strategy is timely for this market environment. It tends to do well in a highly volatile trendless market so we’re excited about the launch,” he said.

The firm has launched a variety of mutual funds based off the index. Last year, the firm launched its managed futures strategy fund, a tactically-managed futures strategy that seeks to track the firm’s signature Capital Systematic Index.

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