Fund Managers Turn In Flat Q3 According To Ferrell FX Index

Fund managers, on average, didn't fare much better than the major banks in this difficult foreign exchange market, according to Ferrell Capital Management's latest quarterly Ferrell FX Index, which reports an overall flat third quarter. The Index is a benchmark for tracking the performance of multi-advisor currency portfolios.

The flat third quarter is off from the positive 3.8 per cent reported for the second quarter (FXW, July 29). The median return for the period was up 0.1 per cent, and the median between systematic and discretionary traders shows neither really outperformed the other during the period, showing flat and 0.3 per cent gains, respectively. When calculating the median, Ferrell omits the top and bottom 5 per cent. The high and low performances were up 19 per cent and down 10.4 per cent, respectively.

For discretionary traders, the Index shows returns of 1.7 per cent, and a negative 1.1 for systematic traders. However, the gap was wider between the top performers in each group, with the top discretionary trader up 19 per cent, while the top performer among the systematic traders was 4.8 per cent.

"The full year 1996 has been a sideways movement with wide swings within ranges," says Ferrell's S. Waite Rawls in a statement. "The third quarter was no different as systematic traders entered and exited positions frequently, without profiting from longer trends. Discretionary managers traded more successfully within the ranges."

The top quarterly performance was, for the second time, achieved by Toronto-based discretionary traders Friedberg Commodity Management, boasting gains of 19 per cent, comparable to top-slot gains of 22.3 per cent last quarter.

"During the month of September, we successfully moved our long exposure in Deutsche marks and Swiss francs into British pounds, says Rick Zauderer, vice president of trading for Friedberg. "While the mark and Swiss franc in September dropped 2.5 to 3 percentage points, the British pound gained a few percentages. Also, we were holding long New Zealand dollars and short Japanese yen, so those positions also worked pretty well for us."

The second-best performer was Dublin-based systematic trader GaiaCorp's FX programme, posting gains of 4.8 per cent. GaiaCorp's Hedge II programme was tied for third place, posting gains of 4.4 per cent. Both programmes used the same systematic model with just varying levels of volatility.

"We went into the quarter long the dollar versus mark and yen," says Louise McKenna, a marketing executive at GaiaCorp. "In July, we switched off the dollar in favour of the mark because it had lower volatility, so we managed to avoid a lot of losses when the dollar went down in July. Whatever we lost in our dollar position in July we made up on our mark position."

The other programme tied for third place was systematic trader IFC Management, reporting gains of 4.4 per cent. IFC made its profits by holding onto one "lucky" position, says Steve Sidlowsky, chief trader at the Stanford-based company.

"Discipline," emphasizes Sidlowsky. "On August 6th our system said to buy dollars, and we blindly followed it, even though everyone said it was very aggressive. That was it--one trade that we blindly followed. We traded very little, but we got very lucky."