Sat, Jun 24, 2017
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Manager Profile Lafayette Trading had a nice gain in H1 2009, while CTAs as whole are in the red. How did Lafayette do it?

Tuesday, August 11, 2009

Sweet Spot Timing

The political and regulatory controversy around high-frequency trading highlights the question of trade timing. Some commodity trading advisors use multiple time frames. Others find that their approach works best within a certain period. That is the case for Lafayette Trading, a CTA based in eponymous Lafayette, California. Managing director Ken Jones explains how they look at this pivotal question.

Mr. Jones has been in the alternatives space since the mid-1980s. He worked for a $1 billion global macro fund in California, Synergy (CRG) Partners. There he met his current business partners, Todd Lorber and Ken Whitley.

Building on a trading system that Mr. Whitley developed and licensed beginning in November 2001, the partners launched trading for accounts managed by Lafayette in October 2008.

So far, the group appears to have found the right time horizon. The CTA was up about 10% year-to-date as of July. The system has generated 14.3% annualized compounded returns since 2001, deducting pro-forma fees.

Ken Jones of Lafayette Trading:
We are short term active traders, not high frequency traders. We don't trade every minute, but every day we re-evaluate the market, looking for new opportunities. So we have the potential to trade every day, but we risk capital only when the right opportunity shows up. Typically of 20 trading days a month we have trades on 10 days; the other 10 days we're in cash.

We trade equity markets using index futures. We are doing research into other markets and could extend our focus but our portfolio's track record was built trading equity indexes. That's where we have an edge, so we've chosen to stay focused on that overlaying the same program on additional types of contracts does not seem useful.

As luck would have it, we started Lafayette's proprietary account trading in October 2008, at the height of the financial crisis. That first month was difficult, with equities going straight down. We lost about 5% that month but recovered later in the year and were able to make money.

Last year we did not have as high returns as trend followers, but for an investor our distinctive strategy provides portfolio diversification.

We've done well this year thanks to our strategy and system. Because we're not a trend follower, the lack of long-term trends has not been a problem.

I think a big part of our advantage is the fact that we're more frequently engaged in the market but our system is set up not to be engaged when the conditions are not right. If our program finds a situation where it has a statistical edge, it allocates capital that day. Otherwise we stay in cash.

Our algorithms are proprietary and unique to our strategy. We're always doing research, including research into diversifying with a separate investable European and Asian equity index portfolio, but the core program does not change much. Early this year we added one new algorithm that reflects a different way of looking at the market, but it did not make a significant change to the portfolio.



 
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. FinTech - Rise of robots: Inside the world's fastest growing hedge funds[more]

    From Bloomberg.com: Believe the hype. Quants have never been more popular. After doubling over the past decade, assets run by so-called systematic funds have hit a record $500 billion this year, according to estimates from Barclays Plc. In some ways, their meteoric rise is due to the same technolog

  2. Legal - Bond market concerns could scuttle Paulson's Fannie-Freddie plan[more]

    From Bloomberg.com: A hedge fund proposal for freeing Fannie Mae and Freddie Mac from U.S. control is poised to face stiff opposition from investors who say it risks wrecking the mortgage-bond market. The Moelis & Co. blueprint, which firms including Paulson & Co. and Blackstone Group LP sponsored,

  3. Other Voices: Are your pricing policies and procedures for less liquid instruments adequate?[more]

    Komfie Manalo, Opalesque Asia: The unrelated position mismarking incidents that quickly precipitated the closures of both Visium Asset Management and Marinus Capital have been recent focal points for market participants, but regulatory scrutiny of valuation choices for less liquid instruments is

  4. FinTech - AI hedge fund Numerai now live on Ethereum, Cryptocurrency hedge funds generate huge returns as bitcoin surges[more]

    AI hedge fund Numerai now live on Ethereum From Cryptoninjas.net: Back in February, Numerai announced numeraire (NMR), a cryptographic token to incentivize a new kind of hedge fund built by a network of data scientists. Earlier today, the Numeraire smart contract was officially deployed

  5. Investing - Advisors slash hedge fund positions, Theravance Biopharma is a top pick of investment guru Seth Klarman, As asset management industry grows a search for new revenue streams[more]

    Advisors slash hedge fund positions From Barrons.com: Financial advisors have cut wealthy clients' exposure to hedge funds by up to one third over the past 12 months, The Financial Times reports. Advisor firms in the FT's annual top-300 ranking have reduced their hedge fund allocation to