John W. Henry, the famed futures trader and principal owner of the Boston Red Sox, was the king of Beantown in October, 2004, when his Sox won the World Series and broke the most fabled curse in sports. But he has been in a dreadful slump ever since. In 2005, 9 of Henry's 11 managed futures funds posted double-digit losses. And with those losses extending through February, his firm has shed $1 billion in assets, down 30% from the peak at the end of 2004, when stray pieces of confetti still littered the Boston streets. "This is a tough business," says Henry, who figures this stretch "may well [be] the worst" since he launched his firm, John W. Henry & Co., in 1982.
Henry is famous for delivering long-term results. "He is one of the all-time geniuses, and his track record has been extraordinary," says John Damgard, president of the Futures Industry Assn. But after the recent hitless streak, Henry's career batting average has dipped. The Strategic Allocation Program, his biggest fund, lost 19.2% in 2005 and an additional 10% through February. Its annual- ized compound return through the end of last month was just 8.63% since the fund's inception a decade ago, a smidge below the 8.64% gain of the Standard & Poor's (MHP ) 500-stock index over that period.
Has the curse of the Bambino been transferred from the Sox to their owner? Has Henry taken his eye off the ball? He laughs off such thoughts. "Our business is very cyclical," he says, "and we go through periods where we just can't do anything right." Henry is confident, however, that he'll turn things around.
But the Achilles' heel of long-term trend followers is a range-bound market with no clear direction. Interest rates and currencies, where he invests some 70% of his money, fit that description right now. "When neither one is working, we aren't going to do well," says Henry.
LIGHT ON SUGAR
Last year, Henry whiffed on 30-year Treasury futures when his trading model identified trends that didn't pan out. And he bet on higher natural gas prices only to be blindsided when a warm December led to a drop. "Henry did poorly," says Sol Waksman, president of Iowa-based Barclay Group, which tracks managed futures and hedge funds. "But he was not alone.... [Many] trend followers had a very bad year."
Henry was also hurt by his risk management strategies. Prices of sugar, copper, and gold all surged last year. But because those markets are far more volatile than currencies and interest rates, "we don't allocate much money to them," says Mark S. Rzepczynski, president of the Boca Raton (Fla.)-based firm and the man who runs things on a day-to-day basis. Sugar futures made up less than half a percent of Henry's holdings in 2005.
Not that investors are bolting in droves. All the red ink "hasn't shaken my confidence," says Peter Lamoureux, president of Iowa-based Everest Asset Management Inc. "In fact, I added money on Mar. 1, and if they don't come back in March, I will add more on Apr. 1."
One reason for the loyalty is that Henry's funds have proven to be good diversification tools. During the bursting of the tech bubble, Henry's Strategic Allocation Program surged 53.5%, while the NASDAQ was cut in half. And in the months before the current war in Iraq, Henry's Financial & Metals Portfolio rose 91.6%, while the S&P 500 fell 25.5%.
Can he post those kinds of gains again? "No one can predict the future," says Henry. But he suspects that the dollar, oil, and interest rate markets will eventually break out of their trading ranges, creating some new opportunities.
Until then, the firm is pulling in its horns. But count on Henry & Co. to come charging out of the dugout as soon as clear trends emerge, curse or no curse.
By William C. Symonds