Quant Funds Did Not Cause Sell-off, Man Group CEO Says

(Bloomberg) -- Man Group boss Luke Ellis defended the hedge-fund industry from suggestions that trend following strategies were to blame for the surge in volatility that rocked global markets last week.

Commodity trading advisers, which bet on market trends and across asset classes, did sell positions but not indiscriminately, the chief executive officer of the world’s largest publicly-traded hedge fund said in an interview with Bloomberg Television. Instead, the market fall was triggered by worries about inflation that would usually tend to hurt bonds.

“If we actually get significant inflation, then we are going to see a big selloff in bonds and then you’re going to see equities have to reprice,” he said. “Equities are a perfectly reasonable valuation if you assume sub three percent 10-years. If we get four percent 10-years, equities are not priced right.”

The market plunge caused volatility to spike last week, hurting those who were betting short on turmoil and raising suspicions that quants had caused or exacerbated the sell-off. Volatility will remain higher than last year’s abnormally low levels, Ellis said, and he warned that buying on dips has become “folklore” but is not always the right strategy.

Trend following funds’ image as a shock absorber in times of distress took a beating last week as the widespread sell-off in the global equity markets led to heavy losses at some of the best-known quantitative investment firms in the world.

Quant Funds Did Not Cause Sell-off, Man Group CEO Says

The Aspect Diversified Trends Fund plunged about 13 percent last week, The Winton Fund lost 7 percent, while Amplitude Capital’s Klassik Strategy declined 10 percent, according to investor letters seen by Bloomberg. Trend-following hedge funds slumped almost 8 percent on average, their worst weekly loss since 2013, according to data compiled by Societe Generale.

The decline erased earlier gains this year at Aspect’s and Winton’s hedge funds, and deepened losses at Amplitude Capital’s money pool. Spokesmen for the three investment firms declined to comment.

Man Group got out of turbulent markets early last week as the correlation between equity and bond markets changed, Ellis said. That did not stop one of its main funds from falling. Man AHL Diversified Futures plunged about 4.6 percent on Monday, leaving it flat for the year.

Trend-following hedge funds won investors’ confidence after recording some of their best gains during the market crashes at the turn of the century and in 2008. Their assets hit record levels last year, according to data compiled by Eurekahedge, as investors looked for ways to diversify their portfolios.

©2018 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.