For two decades David Harding and the Winton Group tallied returns of at least 19% by employing algorithms that used a “trend-following” strategy. But those algorithms don’t work anymore and at age 57, Harding is trying to devise new algorithms that can turn in the same kind of results for the $23.5 billion in funds he currently manages.
Reporters Eric Schatzker and Nishant Kumar tells Harding’s story in this article from Bloomberg:
Quants now face a dilemma: keep trading the same way hoping that returns improve or spend time and money on new strategies that might not work. Harding concluded the status quo wasn’t an option if he wanted to keep competing in the hedge fund game.
Last year, reeling from one of his worst monthly losses since the financial crisis, Harding took drastic action. He slashed trend-following from a 50 percent weighting in the flagship Winton Fund to 25 percent and started rewriting the firm’s playbook. Winton would trade thousands more securities, expand into new markets and develop fresh algorithms to try to recapture its former edge.
“The fees have been coming down, the asset sizes have been increasing, a lot of firms are being pushed to the wall,” he said. “I’ve definitely not got my back to the wall, but I am absolutely driven to innovate and can’t afford to be complacent.”
Winton now trades about 7,000 stocks, up from 1,500 as recently as four years ago. It’s testing ways of generating trading signals from company events such as acquisitions and leadership turnover. The firm has a major project in grain futures that involves time-series modeling with data stretching back more than 100 years. It’s also studying weather patterns to see if there’s a way to predict — and trade — climate change.
There’s a catch, however. Many of Winton’s clients had signed on because they wanted trend-following. As Harding began shifting away from his mainstay, some abandoned him. Investors pulled about $3.8 billion last year — much less than his worst-case scenario. The firm now manages $23.5 billion, down from $33.7 billion in 2015.
