We asked the question of whether trend following is dead in our newsletter this week, coming to the conclusion that it is most certainly NOT dead. But news today that trend follower extraordinaire John Henry is shutting down his famous trend following managed futures programs is likely to reignite some of those questions.
Via the Wall St. Journal:
John W. Henry & Co., a trading firm controlled by the principal owner of baseball’s Boston Red Sox, told clients it will stop managing their money amid dwindling assets and slumping returns…
John W. Henry said it will continue to do some trading for its own account. The firm, which managed more than $2.5 billion in 2006, today oversees less than $100 million, Mr. Henry said in an email.
“The firm has been small since 2007 and once assets fell below $100 million this year the company became too small to sustain itself,” Mr. Henry wrote. “We have been returning assets to investors with a desire to exit the client business by year end.”
Just two months ago we took a look at John Henry’s rough patch, which included the struggles of the Boston Red Sox, as well as the worst-ever drawdown for his main CTA program, GlobalAnalytics. At the time things weren’t looking good, but now his eponymous firm has made its death (at least as far as managing clients’ money) official.
We had hoped that Henry would be able to turn things around, but the firm never seemed able to bounce back from losing Merrill Lynch in 2005. Needless to say, this is a disappointing outcome for a CTA that was considered one of the pioneers of the industry, and consequential proof that bigger isn’t always better. John Henry was the name brand CTA of the 90s and early 2000’s – the Winton and Transtrend and Man AHL of its time. And now… done.
Is this because trend following is dead? No. Revisit our article for more on that. Is it because investor appetites for “trend following” have changed? Maybe/probably. Henry never made the pivot to provide a low volatility program for the institutional investors, instead keeping the profile of a “pure” trend follower with often unbelievable upside returns (+90% in 2008) paired with bigger than average max drawdown (-38%). Now, Winton has been more consistent in its ability to make money (up in 2011 versus Henry down), but to us the bigger reason Henry is closing up shop while Winton is at all time highs in client money is that institutional investors prefer Winton’s +21% in 2008 and max drawdown of -25% instead of the bigger upside and bigger downside of Henry.
Maybe it is back to the drawing board for Henry, and he’ll re-emerge later with a lower volatility, more sell-able product? We’ll see. But for now – we’re thinking the silver lining here might be this news as a sort of contrarian signal on trend followers.