Hedge Fund Making A Splash In Sweden!
Stockholm – Swedish systematic fund manager ALFAKRAFT is probably best known from its energy trading business. In 2000 hedge fund manager Bengt Lindblad started trading in electricity, setting up one of the world’s first electricity (hedge) funds, According to Nordic hedge fund source.
With this experience, returning in excess of 30% per year, at times accounting for more than 10% of traded volumes on the energy exchange Nordpool, ALFAKRAFT managed to attract and manage 1 Bln SEK.
“In 2008, ALFAKRAFT decided to close the fund. This due to major changes in the market conditions. The big power producers was sitting on better information and had learned how to trade with help of their control over the production”, says Mats Grube, partner at ALFAKRAFT.
In June 2010 ALFAKRAFT were back with a bang, launching ALFA Commodity Fund, a diversified managed futures fund/CTA. Thomas Stridsman developed the model based investment strategy. Thomas is a well known, experienced designer of trading systems, having worked at Rotella and CQG and a respected author, as in house expert for Futures Magazine and for his book “trading systems that work”.
In its first twelve month cycle since inception Alfa Commodity Fund has returned 28,25%.
According to Mats Grube the fund trades on over 40 markets in seven categories, from metals, equity indices, FX, energies and (soft) commodities.
The trend following strategy uses a systematic/ quantitative approach for entry and exit signals to a trade, as well as a sophisticated algorithm to quantitative position size, as opposed to the more commonly used non-systematic approach of a “discretionary overlay” used by many managers. “In my experience, knowing how large to trade is more important than knowing when to trade”, Stridsman told Traders Magazine in a featured interview. “Building trend following systems that perform reasonably well is easy”, he continues “making your strategy competitive to other good trend following fund managers is the really hard part.”
Many great trend followers are very secretive about the algorithms they use for trading, and it is not unusual to combine more than one system to their trading strategy, using different time frames or uncorrelated systems to achieve their final results. It is understandable for the business interest of the manager and eventually for the investor’s returns to keep this edge. It is the competitive advantage these managers may have, their “coca cola formula” in an increasingly competitive market.
Surprisingly Thomas tells Traders Magazine then, in his opinion no more than 3-4 indicators are needed to achieve good results, two for entry, two for exit.
To outsiders, the percentage of winning trades for the great CTA managers is lower than one thinks, often well below 50%. The key than is to loose a little on wrong entries and failed trades, and make up for it on the profitable ones. By definition of the game, in trend following strategies, you also give up some of the open profits prior to entering the position you can define as a trend, and then again when exiting, before you can determine the trend has reversed and you are stopped out. “This is what trend-following is all about. You lose, lose, lose and lose some more and then – BAM! – one big winner makes up for it and adds you the profits.”, Stridsman told Traders Magazine.
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