Deep Dive into the Data of Systematic Hedge Funds

Today we stepped away from talking specifically about trading strategies and chatted with Linus Nilsson about the database of about 4000+ hedge funds / CTA's that he maintains and makes available to the public. We thought this would be an important discussion because we all want to benchmark ourselves against other expert managers. It's an important aspect of 'setting our expectations' and also 'considering what is achievable'.

So while we step away from the excitement of creating robust trading strategies in this episode, many will find it interesting to know about the average returns and statistics of the best funds globally. What kinds of track records are out there? What kinds of funds survive the longest? What kinds of statistical metrics (or qualitative attributes) are best to compare return profiles? What does it take to succeed as a new fund? What are the hurdles? There's a lot that can be done with the raw data that NilssonHedge provides and we will deep-dive into that in a follow-up episode. For those who are 'business minded' about their trading, we think you'll enjoy the show. Happy trading & investing.

Linus, with a career spanning over two decades, began by recounting his entry into the futures market in 2001. His journey through various roles in CTA and hedge funds had led him to create a significant tool in the trading world: the Nilsson Hedge database. This database, Linus explained, was born out of a need for a comprehensive tool to analyse and compare various trading strategies, serving both individual traders and large institutional investors.

A major focus of the discussion was trend-following strategies. Linus illuminated their enduring nature, noting that despite their inherent volatility and periods of drawdown, they had managed to survive over extended periods. He shared anecdotes about the early days of trend-following, harking back to the strategies employed in the early 2000s and how they had evolved over time. The conversation then shifted to the challenges faced by new managers in the industry. Linus emphasized the importance of setting realistic goals and the need for solid back-testing of strategies, recounting stories of emerging managers who struggled to attract capital despite having potentially superior strategies.

Rich chimed in, sharing his experience with the Nilsson Hedge database. He spoke about how he had used it for deep analysis and portfolio construction, praising its depth and utility. This segued into a discussion about fund size and performance. Linus recounted instances where allocators, despite evidence of better performance, often gravitated towards larger, more established funds. He narrated tales of smaller, niche managers who, while delivering superior performance, remained overshadowed by the brand and size of larger funds.

The conversation then turned to the topic of fund fees and the rise of ETFs in the CTA space. Linus provided insights into the changing landscape of fees and how they influenced fund performance and investor decisions. He recalled interactions with fund managers who had to navigate the complexities of fee structures while ensuring the competitiveness of their funds.

Diversification in trading and allocation strategies was another key topic. Linus compared the diversity between discretionary and systematic trading methods, sharing stories that highlighted the unique challenges and benefits of each approach. He talked about how discretionary traders, with their capacity for storytelling and market interpretation, offered a different flavour compared to the more data-driven, systematic traders.

Towards the end of the episode, Linus shared his future plans for the Nilsson Hedge database, including potential expansions and the integration with other analytical tools. He recounted his excitement about these developments, emphasizing how they would enhance the utility of the database for a broader range of users.

Linus's anecdotes, combined with the hosts' insights, painted a vivid picture of the dynamic and evolving world of trading. His experience and the capabilities of the Nilsson Hedge database provided listeners with a deeper understanding of the complexities and strategies in trading and fund management.

Get in touch with Linus:

w: www.nilssonhedge.com
x: @nilssonhedge
li: www.linkedin.com/in/nilssonhedge/