Global View from Brazil
Commodity trading advising attracts people from many parts of the world. Gabriel
Pellegrini hails from SŁo Paulo, Brazil. He began his career in financial
markets in 2003, working in the agricultural sector of the Bolsa de Mercadorias
& Futuros. He began to trade his own capital in 2004 and tested systems he
developed for futures markets, before starting his own firm, Global Edge Capital
Registered with National Futures Association as a commodity trading advisor and
commodity pool operator, Global Edge has both Brazilian and American clients
The program returned 8.6% last year, doing better than many systematic CTAs. It
made 23.3% in 2008.
QUOTE There are some very good quantitative traders now in Brazil, but mostly
they're in equities.
Opalesque Futures Intelligence: How did you get into futures trading?
Gabriel Pellegrini: My first job was at the Brazil futures exchange and I
traded in only Brazilian markets for about four years. Then I started to trade
in international markets. By 2003 I had learnt about systematic futures trading
and looked for a firm that did this, but I could not find one in Brazil at that
time. I traded Brazilian futures for myself and in 2008 opened Global Edge
OFI: Why did you move to international markets?
GP: For quantitative trading, you need a lot of liquidity. We don't have
many liquid markets in Brazil. At the time, there was only one agricultural
market in Brazil where I could do quantitative trading and that was coffee. But
I traded the financials, including FX-the US dollar vs. the Brazilian real-and
interest rates. Those are highly liquid.
OFI: What is your investment strategy?
GP: Long-term trend following is part of our strategy, but long-term
trend following does not make money when markets move sideways. Markets stay
sideways much of the time, perhaps more than 60% of the time. So long-term trend
followers have a problem. When there are trends, trend followers make good
money. But there are lengthy periods when they don't. There are other ways to
make money. I developed a short-term trading model to take advantage of other
types of market moves, using mean reversion and countertrend strategies. This
program trades over-bought and over-sold markets. It tends to make money when
trend-following does not. In addition we have a medium-term strategy, with
15-day average holding periods. These diverse models allow us to find
opportunities in different markets.
OFI: How significant is trend following for your program?
GP: Trend following is still about 40% of our portfolio, but the blend is
much better than any single strategy. We have 12 distinct models.
OFI: Are Brazilian markets good for trend following?
GP: To do long-term trend following properly, you have to trade many,
uncorrelated markets. Brazilian markets are highly correlated. I think the
strategy works better in the international markets that I trade.
OFI: What's the key characteristic of your models?
GP: The most important thing I've learnt in trading is that it is
essential to trade on the side of the long-term trend, say as measured by a
200-day moving average. With our countertrend strategy we go with the long-term
trend- buy the dips on the uptrend and sell the peaks on the downtrend. My other
principle is not to have any preconceptions about markets and to test every
OFI: Which markets do you trade?
GP: The approach is to trade as many markets as possible because you
never know where the next opportunity will be. I trade more than 100 futures
markets, though not all at the same time. All our models look at all the markets
every day and signal attractive trades. We put on only those that meet our risk
control rules. Global Edge has 35 to 45 positions on average at any time.
OFI: Where do you see growth opportunity?
GP: We'd like to add more Asian markets to the portfolio. I've been
looking at China. I've traded only the Hong Kong futures market, but I expect to
add other Chinese markets.
OFI: Is systematic futures trading common in Brazil?
GP: There are 200 to 300 multi-market hedge funds in Brazil. Most of them
trade stocks and very few are quantitative. There are some very good
quantitative traders now in Brazil, but mostly they're in equities and some
trade futures alongside equities. Systematic futures trading is very new here, I
don't know of any managed futures funds other than Global Edge.
OFI: What's the outlook for managed futures?
GP: The past 18 months have been difficult for many CTAs but the turning
point is probably near. Managed futures outperformed most asset classes in the
past 30 years. People talk about CTAs becoming mainstream, but it has not
happened yet. I look forward to CTAs becoming mainstream in the next five years.