Graham Capital’s Tropin says there’s no more easy money following stocks
By Nell Mackenzie
LONDON, September 5 (Reuters) – Kenneth Tropin, founder of the $18 billion hedge fund Graham Capital Management, said heightened economic uncertainty will make it harder to make money tracking major stock indexes.
A regime change awaits hedge funds that should last, Tropin, who has led Graham Capital for the past 29 years, told Reuters late last week.
Tropin’s portfolios focus on “macro” trading, a strategy that uses economic and political views to find signals to buy and sell bonds, currencies and commodities.
The S&P 500 stock index, a broad measure of U.S. stocks, is down nearly 18% year-to-date .SPXon track for its first fall in four years and its biggest fall since 2008.
The risks of a global recession, rising interest rates and a surge in inflation not seen in decades are pushing investors to sell equities.
“Since 2003, equity-focused hedge funds and beta-correlated funds have absorbed much of the growth in the hedge fund space,” Tropin told Reuters.
But markets have changed, he noted. The same volatile economic environment that resulted in losses for many equity-focused funds also proved to be the perfect environment for a more traditional type of hedge fund, like Tropin’s. He takes advantage of large market fluctuations to trade bonds, currencies and commodities.
Tropin added that stock-picking hedge funds, which have lost money this year, face a tougher environment and investors should steer clear of more traditional “beta” trading strategies such as those that track the S&P500.
Stock-picking hedge funds saw their cumulative returns fall 12.24% in the 12 months to July 31, according to investment data provider Preqin.
Tropin portfolios also buy and sell stocks, but try to do so in a way that is uncorrelated to broader trends.
Computer-programmed algorithms that pick up on market movements that change speed or momentum or find when assets are relatively cheap or expensive account for the bulk of the money Graham Capital makes.
The hedge fund also uses fund managers to actively manage the portfolios. These are geared towards “macro” trading.
Tropin’s main actively managed fund is up nearly 20% this year so far, compared to other actively managed macro strategies which have risen on average more than 4% so far this year, according to figures from Preqin.
Another fund, which uses a combination of human- and computer-led trading ideas, returned almost 30% for the same period. Tropin’s desktop macro fund is up about 24% for the year so far. The year-to-date industry average is nearly 3%.
Graham Capital also has an IT trend-following fund that picks up market movement once it has started and exits when the movement slows. It’s brought in nearly 33% so far this year, Tropin said.
Tropin says his success reflects how the hedge fund industry has changed. Since 2003, stock-picking companies that tracked the rise of indices like the S&P500 have dominated the success stories, but now the tables have changed.
(Reporting by Nell Mackenzie; editing by Dhara Ranasinghe and David Evans)
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