Originally published in the Brandywine Asset Management Monthly Report.
Since Brandywine’s Symphony Program began trading in July 2011, it has produced a total gain of +8.79%, while all major CTA indexes have recorded losses (for example, the BTOP 50 lost –4.67% during the period). This past month provides another great demonstration of how Brandywine can profit while other CTAs suffer losses.
The performance difference lies in Brandywine’s Return Driver based investment philosophy and our belief that the most consistent and predictable returns are earned by systematically employing broad strategy and market diversification across a balanced portfolio of fundamentally-based trading strategies. In support of this philosophy, Brandywine employs dozens of independent trading strategies, many of which were first employed by Brandywine more than two decades ago and which continue to be valid today.
A look at some of Brandywine’s trades over the past month provides a great illustration of how these time-tested trading strategies provide Brandywine with differentiating results.
Trade Example #1: Fundamentally-based trade in deferred lean hog market
This trading strategy is highly selective, trading no more than once each year, with more than 70% profitable trades. The original research in support of this strategy was developed in 1991 and the strategy remains valid today.
Trade Example #2: Interest rate directional arbitrage in New Zealand Dollar
This trading strategy utilizes interest rate differentials among currencies and within each currency’s yield curve to enter into longer-term positions. The Return Drivers underpinning this strategy are completely independent of trend following, and as you can see on the chart, this presents the opportunity for trades to be entered counter to prevailing trends. The current position was entered on June 27th and has contributed more than 30 basis points of profits to Brandywine’s performance.
Trade Example #3: Event-driven strategy signal in deferred Eurodollar market
Brandywine’s Event-driven trading strategies trace their roots back to the discretionary trading conducted by Brandywine’s founder in the 1980s. These strategies often take counter-trend positions following the release of government reports or other events. The strategy is selective, entering into approximately one trade per year per relevant market. When the current trade was entered in early September, the Eurodollar market was in a prolonged downtrend. Brandywine’s new long position was counter to that held by trend followers and while already profitable, further benefitted from a strong rally on September 18th following the decision of the U.S. Federal Reserve to delay the start of “tapering.”
With dozens of independent trading strategies trading across well over 100 markets, Brandywine employs more than 1,000 strategy-market combinations similar to those illustrated above. Each of those strategy-market combinations is based on a sound, logical Return Driver with a positive performance expectation that has withstood the test of time. The result is a fundamentally-based investment approach that is balanced across numerous positions and Return Drivers and that is not dependent on any single style of trading or market condition to achieve profits. This is in keeping with Brandywine’s belief that the most consistent and predictable returns are earned by systematically employing broad strategy and market diversification across a balanced portfolio of fundamentally-based trading strategies.