Is Trend Following Dead: John W. Henry edition

We asked the question of whether trend following is dead in our newsletter this week, coming to the conclusion that it is most certainly NOT dead. But news today that trend follower extraordinaire John Henry is shutting down his famous trend following managed futures programs is likely to reignite some of those questions.

Via the Wall St. Journal:

John W. Henry & Co., a trading firm controlled by the principal owner of baseball’s Boston Red Sox, told clients it will stop managing their money amid dwindling assets and slumping returns…

John W. Henry said it will continue to do some trading for its own account. The firm, which managed more than $2.5 billion in 2006, today oversees less than $100 million, Mr. Henry said in an email.

“The firm has been small since 2007 and once assets fell below $100 million this year the company became too small to sustain itself,” Mr. Henry wrote. “We have been returning assets to investors with a desire to exit the client business by year end.”

Just two months ago we took a look at John Henry’s rough patch, which included the struggles of the Boston Red Sox, as well as the worst-ever drawdown for his main CTA program, GlobalAnalytics. At the time things weren’t looking good, but now his eponymous firm has made its death (at least as far as managing clients’ money) official.

We had hoped that Henry would be able to turn things around, but the firm never seemed able to bounce back from losing Merrill Lynch in 2005. Needless to say, this is a disappointing outcome for a CTA that was considered one of the pioneers of the industry, and consequential proof that bigger isn’t always better.  John Henry was the name brand CTA of the 90s and early 2000’s – the Winton and Transtrend and Man AHL of its time. And now… done.

Is this because trend following is dead? No. Revisit our article for more on that. Is it because investor appetites for “trend following” have changed?  Maybe/probably. Henry never made the pivot to provide a low volatility program for the institutional investors, instead keeping the profile of a “pure” trend follower with often unbelievable upside returns (+90% in 2008) paired with bigger than average max drawdown (-38%). Now, Winton has been more consistent in its ability to make money (up in 2011 versus Henry down), but to us the bigger reason Henry is closing up shop while Winton is at all time highs in client money is that institutional investors prefer Winton’s +21% in 2008 and max drawdown of -25% instead of the bigger upside and bigger downside of Henry.

Maybe it is back to the drawing board for Henry, and he’ll re-emerge later with a lower volatility, more sell-able product? We’ll see. But for now – we’re thinking the silver lining here might be this news as a sort of contrarian signal on trend followers.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

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