Sun, Apr 20, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Insider Talk Understanding quantitative macro: the managers of Numbers discuss their hybrid system.

Tuesday, August 11, 2009

Macro by Numbers

Quantitative macro is something of a hybrid. Macro managers do not rely purely on price movements but consider other factors, ranging from inventories to central bank policies. Traditionally they made discretionary decisions not based on computerized models, with George Soros a prime example.

By contrast, a classic trend-follower trades on the basis of price alone, using computer models. Quantitative macro has elements of both.

Paris-based Numbers Alternative Management exemplifies this blend. Here Michel Boiron and Bertrand Savatier, who founded Numbers in 2008, discuss the distinctive approach. Both have a long history in managed futures.

From its launch in February 2008 through December, Numbers' Global Diversified Futures returned 38%. In the first seven months of this year, the Numbers program made almost 6% while managed futures as a group lost money. The program combines global macro quantitative models with technical systems.

Mr. Boiron co-managed a long-term trend-following program from 1996 to 2002, also called Numbers. In 2002, Mr. Boiron went back to trading proprietary capital and exploring new techniques, in particular techniques in discretionary trading. In time he developed computer models that use non-price information and integrate fundamental analysis with systematic trend-following.

Mr. Savatier became director of the managed futures department of BNP Asset Management after running ITF Management, one of the first Swiss CTAs, from 1991 till 1997. In 2000 he co-founded John Locke Investments, a well-known French CTA. In 2006, he sold his shares to his partner and moved to Quantam.

Opalesque Futures Intelligence: How did you manage to make money in the first half of this year, unlike many commodity trading advisors?

Michel Boiron: In the past I worked with a pure trend-following system, but now we have a variety of strategies. Some of them are purely technical and take into account only market action. But others are more complex and integrate either non-price based filters or use a statistical approach that detects short-term anomalies in the distribution of futures spreads. We also use mean-reverting, global macro, currency and interest rate models. Furthermore, we're always looking for new markets and time horizons to extend our portfolio. We currently trade 60 instruments with duration ranging from a few days to over a year. The large variety of different approaches was particularly useful this year.
Bertrand Savatier: The two of us been in systematic trading for a very long time, but the systems we now have are a completely new generation and show very different performance profiles from pure technical systems.

Michel Boiron,"Non-price information, as used by discretionary traders, can be very useful especially in commodity markets."

OFI: What led you to quantitative macro?
MB: Non-price information, as used by discretionary traders, can be very useful especially in commodity markets. I developed discretionary techniques for many commodity futures and over time my discretionary trading became increasingly quantitative. Now those models are fully computerized and blended into a single global program. Because the program contains models with very different analytical underpinnings, it has real diversification.

OFI: How does your approach compare to traditional global macro?
MB: Global macro portfolios tend to be less diversified than ours, because they don't have computerized models and without those it's very difficult to figure out trades in 60 markets at once. By combining computerized global macro models with systematic trend-following in many different markets, we get a much wider diversification than achievable with conventional global macro.

OFI: Where did were the profitable trades this year?
MB: It was not a single trade that made money for us this year. The statistical models and mean-reversion both did well, but there were good trades in other parts of the program, including the non-price indicator screens.

OFI: What non-price information do you include?
MB: That depends on the specific market. For agricultural markets, to take one example, our model may include seasonality.

OFI: How does the rest of the year look for your strategy?
MB: As much as possible, we've designed the program to function in all types of environment. Some of the models do better in some environments, others do better in other environments.
BS: Futures data allows you to back-test your models in very different kinds of environments, like the inflationary 1970s or Japan's deflationary experience since the 1990s. It's a real comfort that we've tested the models against various situations that are similar to what we're likely to face.

OFI: What if commodity markets, in particular energy, go through sharp long trends again?
BS: Our trend-following models will catch those trends. We did very well in the volatile markets of 2008.



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Banner
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. Opalesque Exclusive: Classic Auto Funds Limited (CAF) launches several car investing funds[more]

    Bailey McCann, Opalesque New York: A new trend in alternative alternatives is emerging - car appreciation funds. Classic Auto Funds Limited (CAF) is the first to market with several funds that make super elite luxury cars into real asset investments. As a result of growing overseas demand couple

  2. CTAs could face new challenges in a rising rates environment[more]

    Bailey McCann, Opalesque New York: CTAs have taken a beating performance wise lately, and asset flows reports show that investors aren't sticking around to see how the movie ends. Now, a new white paper from Roy Niederhoffer and Coen Weddepohl notes that as interest rates start to tick back u

  3. Investing – Big hedge funds bought Puerto Rico's junk bonds, Fidelity explores new trading venue amid flash trade concerns, Crisis-era Greek bonds reward early buyers with big effective returns, Cargill unit discloses stake in Freddie preferred[more]

    Big hedge funds bought Puerto Rico's junk bonds From Reuters.com: Several large hedge funds doubled down on Puerto Rico in last month's giant bond sale despite the U.S. territory's financial struggles, the Wall Street Journal reported, citing confidential documents reviewed by the newspa

  4. Opalesque Exclusive: Hedge fund replicators evolve[more]

    Bailey McCann, Opalesque New York: Hedge fund replicators as a group of products tend to get a bad rap from hedge fund managers who suggest that the best a replicator can offer is dynamic beta capture. A

  5. Commodities – Popular value fund manager David Iben bets on Russia, gold,[more]

    From Reuters.com: With large bets on Russia and North American gold miners, one of the best performing stock pickers in the wake of the 2008 financial crisis is back with a new fund that reflects his deep aversion to following the crowd. In the Kopernik Global All-Cap Fund, David Iben is follo