Thu, Nov 27, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Founders Q&A:What accounts for differences between trend-following programs by the same manager? The founder of Clarke Capital offers insights as to program design.

Friday, January 07, 2011


Michael Clarke

Clarke's Program Design

Clarke Capital Management, incorporated in 1993, is one of the longest-lasting businesses in managed futures. The firm has a number of programs with distinctive performance characteristics, each consisting of multiple models. Some of the programs are among the industry's perennial top performers-see Top Ten in this issue.

Founder Michael Clarke is well-know in the industry. Before starting Clarke Capital, he spent several years in options arbitrage. He developed his software tools and futures trading strategy from 1989 through 1992.

Differences between the Clarke programs can be pronounced. The program with the most assets, Worldwide, made more than 36% in 2010 (through November). In 2009 it lost 11%. Another Clarke program, Millennium, lost a lot in 2009-48%. However, Millennium too survived and came back in 2010.

Below, Mr. Clarke talks about how different programs are designed and what he expects in markets.


 "We designed enough risk parameters so that when conditions are difficult the models still have a chance to bounce back…"

Opalesque Futures Intelligence:
What is your strategy?
Michael Clarke: Trend following is what all our different programs do, but they contain multiple models. The models vary in what they look for and the time frame they operate in. For instance, our two Global programs are relatively short term, focusing on a 15-day horizon. That is the shortest we go.

OFI: Do the programs all have the same number of models?
MC: No. Some programs are less diversified than others-Global Basic has only four models so it is more affected by a few great or bad trades.

OFI: Which markets do you trade?
MC: The Global programs trade only about 20 products, which are the most liquid contracts. By contrast, Millennium trades 40 to 50 products. The original programs did not include equity index futures but the newer ones we introduced, like Jupiter, include equity indexes.

OFI: How can the same models apply to markets as different as equity indexes and currencies?
MC: We test new models against a huge database that goes back to the 1940s and contains a great number of commodities. The model has to test extremely well against all those commodities. The testing gives us very robust models that do well with a variety of products. So the trend-following models we use are generalist and apply to all the products that a program trades.

OFI: Why do programs like Worldwide and Millennium differ so much?
MC: We designed Worldwide to be conservative whereas Millennium is designed to be aggressive. But also, it is normal to get variation across models. Just randomly you would get variation.

OFI: What do you mean by aggressive versus conservative?
MC: Aggressive programs trade more models and commodities. They have a higher ratio of margin to equity because they trade more. Millennium trades a number of interest rate products and also holds positions longer. Because of these characteristics Millennium has more drawdowns in very choppy markets. Clients can pick the programs that fit their needs.

OFI: What happened in 2009?
MC: It was a period of rapid change of opinions. Coming off the global crisis, confidence was lacking and individual views of the future were widely uncertain. People were indecisive about how bad things were and changed their minds easily. There were many divergences of intermediate duration, whether in bonds or currencies. There would be a sell-off for a couple of weeks, then a sharp turn around. We need relatively sustained trends; whipsaw markets are very difficult for us. So almost all our programs suffered.

OFI: How did 2010 turn out?
MC: There was still some uncertainty in 2010 but it was a more normal environment in which most of our models made money. For instance, interest rates fell for six to eight weeks. That was a good trend for us.

OFI: How does the future look?
MC: 2009 was the worst year we're going to see in a long time. A crisis that bad probably comes every 50 years and its aftermath was really turbulent. We've survived it and from here on we should do well.

OFI: What accounts for your ability to stay in this business 17 years?
MC: It is going to be 18 years in September 2011. Our models are superior to the average CTA's. So in a way, it is simple! You just need to develop good models. We designed enough risk parameters so that when conditions are difficult the models still have a chance to bounce back, as Millennium did after the '09 drawdown.

OFI: What would you advise a young person interested in becoming a CTA?
MC: It requires a combination of skills and discipline. To develop their own CTA, they need to have a strong computer background as well as trading skills. Developing models is very difficult but it can be learned. It's tough work, but exciting, too.



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - George Soros puts $500m of his money on Bill Gross, Soros, Paulson backed Hispania Activos mulls Realia takeover, Ex-Credit Suisse trader’s hedge fund sees yen shorts as crowded, Hedge hunters double default-swaps as views split, Large hedge fund positions come under pressure, Vikram Pandit's fund picks 50% stake in JM Financial's realty lending arm for $87m[more]

    George Soros puts $500m of his money on Bill Gross From WSJ.com: Before Bill Gross was fully settled in at his new firm, Janus Capital Group Inc., he received an unlikely visit from the chief investment officer of famed investor George Soros ’s firm, according to a person familiar with t

  2. Unlucky Paulson & Co. rebrands $1.6bn Recovery Fund after 13% drop[more]

    From Businessweek.com: A maturing U.S. economic recovery is prompting Paulson & Co. to change course. The $19 billion hedge fund firm, led by billionaire John Paulson, told investors on a conference call this month that the Paulson Recovery Fund will be renamed Paulson Special Situations Fund on Jan

  3. Europe - Hedge funds face exit tax as Iceland central bank discusses plan[more]

    From Bloomberg.com: Hedge funds and other creditors with claims against Iceland’s failed banks face an exit tax as the island looks for ways to unwind capital controls without hurting the economy. The government targets having a plan it can present by year-end that would map out how Iceland will sca

  4. Opalesque Exclusive: Risk management emerges as a competitive focus area for hedge funds[more]

    Bailey McCann, Opalesque New York: Risk management has always been a core component of any trading strategy, as well as a critical part of business management. However, as macreconomic weakness persists, and alpha becomes increasingly hard to generate, risk management as emerged as a more promin

  5. Gross: Inflation is required to pay for prior inflation[more]

    Benedicte Gravrand, Opalesque Geneva: As inflation rises, every dollar will buy a smaller percentage of a good. While deflation will mean a decrease in the general price level of goods and services. These two economic conditions are both in the waiting room. The consensus would like the former to