Hedge funds that rely on computers to guide their decisions should have to listened to Bill Gross last month when he warned that German debt was overvalued.
Cantab Capital Partners, co-founded by former Goldman Sachs Group Inc. quantitative strategies head Ewan Kirk, lost about 9 percent in one of its funds in April, in part because of bond bets, according to an investor letter viewed by Bloomberg News. Winton Capital Management posted its biggest decline in 7 years in its main fund and Aspect Capital, another algorithmic fund, had its largest loss in 13 years in one of its funds.
Investment firms that use mathematical models to decide which securities to buy and sell have done well since the end of 2013, including avoiding losses caused by the Swiss franc’s surge in January. The funds have profited from long-running trends, including a rally in European sovereign debt and falling oil prices, that reversed in April.
“There were some surprises in store for the last two days of the month, with a decent selloff in stocks, bonds and the dollar together with a rally in crude oil,” Matthew Beddall, Winton’s chief investment officer, wrote in an investor letter. The firm lost 4 percent in its futures fund paring gains this year to 0.5 percent.
The decline in European debt shouldn’t have come as a shock. Gross, who ran the world’s largest bond fund until last year, sent out a message on Twitter on April 21 describing 10-year German bunds as the “short of a lifetime.” Alan Howard, billionaire co-founder of Brevan Howard Asset Management, warned days later that it was “crazy” to hold debt with negative rates.
As more managers piled on, including Jeffrey Gundlach of DoubleLine Capital, European bond prices tumbled. The Bloomberg Eurozone Sovereign Bond Index lost 1.4 percent last month, the first decline since December 2013.
Cantab, founded in 2006 by Kirk, its chief investment officer, and Erich Schlaikjer, who also worked at Goldman Sachs, oversees $4.4 billion. The firm lost money in bonds, equities and commodities in April, cutting annual gains in its main fund to 3.4 percent, according to the letter. The fund rose 39 percent last year.
A spokesman for Cantab declined to comment on performance.
The Aspect Diversified Fund slumped 9.7 percent in April and is down 2.5 percent this year, according to an investor letter, a copy of which was obtained by Bloomberg.
A Newedge index that tracks 20 large trend-following funds, slumped 3.9 percent last month, reducing year-to-date profits to 3.3 percent.