Graham Capital’s Tropin says there is no longer any easy money keeping track of stocks


By Neil Mackenzie

London, September 5 (Reuters)Kenneth Tropin, founder of the $18 billion hedge fund Graham Capital Management, said increased economic uncertainty will make it difficult to make money by tracking big stock indexes.

Tropin, who has led Graham Capital for the past 29 years, told Reuters late last week that regime change awaits hedge funds that are likely to continue.

Tropin’s portfolios focus on “macro” trading, a strategy that uses economic and political opinions to find buy and sell signals in bonds, currencies, and commodities.

The S&P 500 stock index, a broad gauge of US stocks, is down nearly 18% so far this year .SPXIt is on track for its first touchdown in four years and its biggest drop since 2008.

The risks of a global recession, rising interest rates and rising inflation not seen in decades are driving investors to sell stocks.

“Since 2003, equity-focused beta hedge funds have absorbed much of the growth in the hedge fund space,” Tropin told Reuters.

He noted that markets have changed. The same volatile economic background that has led to losses for many equity-focused funds has also proven the perfect environment for a more traditional type of hedge fund, such as Tropin’s fund. Take advantage of large market volatility to trade bonds, currencies and commodities.

Tropin added that stock-picked hedge funds, which lost their money this year, faced a tougher environment and that investors should steer clear of traditional “demo” trading strategies like those tracking the S&P500 index.

Stock-picking hedge funds saw their cumulative returns fall 12.24% in the twelve months ended July 31, according to investment data provider Preqin.

Tropin Wallets also buys and sells stocks but tries to do so in a way that is not tied to broader trends.

Computer programmed algorithms that capture market movements that change in speed or momentum or find when assets are relatively cheap or expensive for the bulk of the money Graham Capital makes.

A hedge fund also uses fund managers to manage portfolios effectively. These are geared towards “macro” trading.

Tropin’s main actively managed fund is up nearly 20% this year so far, compared to other actively managed macro strategies which are up on average more than 4% so far this year, according to Breckin’s numbers.

Another fund, using a mixture of human and computer-led trading ideas, has made nearly 30% for the same period. The computer-led Macro Tropin fund is up nearly 24% for the year so far. The industry’s cumulative average, year-to-date, is close to 3%.

Graham Capital also has a computer trend-following fund that detects market movement as soon as it starts and exits when the movement slows. That’s back 33% so far this year, Tropin said.

Tropin says his success reflects how the hedge fund industry has changed. Since 2003, stock pickers that have tracked the rise of indices like the S&P500 have dominated success stories, but now the tables have turned.

(Reporting by Neil Mackenzie; Editing by Dara Ranasinghe and David Evans)

The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.



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