Originally published in the Brandywine Asset Management Monthly Report.
When we began trading Brandywine’s Symphony program in July 2011, we were often asked how we compared to the ‘big names’ in the managed futures industry. While we were friendly and familiar with many of those managers – in fact, Brandywine was either the first or a very early investor in some of today’s largest managers – we didn’t necessarily know the exact nature of how their trading evolved, so we weren’t able to talk specifically about how our approach compared to theirs. But we did have some general knowledge of their trading approaches and so could make some general statements.
The most significant comment we made was that we were confident that our performance would exceed theirs over the next five or ten years. Not out of hubris, but based on some straightforward observations and experience. We didn’t make this statement in any way to malign the other managers, which we respected and continue to respect today. We just felt that we had some distinct advantages that would enable us to outperform. These include:
When Brandywine re-entered the business of trading outside investor money in July 2011, we did so after receiving $10 million in funding from an initial institutional investor. While we have grown since that time, our asset level remains well below that of the largest firms in the business. This provides Brandywine with a size advantage that will persist for a number of years. The two primary benefits of our size are that 1) we are able to easily employ shorter-term trading strategies and 2) we can optimally allocate to less liquid markets that are essentially unavailable to the largest managers. For example, many of our sentiment-based strategies, which have been quite profitable over the past two years, are short-term in nature and difficult to execute by the largest managers. In addition, Brandywine has profited from moves in less-liquid markets, such as the livestock markets, to which the largest managers are unable to optimally allocate.
Brandywine’s founder began trading in 1979, and Brandywine was formed in 1982. We managed money for some of the largest managers and, as mentioned in the opening paragraph, were early investors in other leading CTAs. Those early experiences allowed us to explore, observe and execute a tremendous variety of trading approaches. This experience throughout the 1980s served as the basis for the research methodology and investment philosophy that led to the 100% systematic Brandywine Benchmark Program that we traded successfully throughout the 1990s. The consistent performance of the Brandywine Benchmark Program and the resultant increase in our assets under management into the hundreds of millions of dollars were what first led to our recognition as being one of the industry’s leading CTAs.
Longevity by itself is not an edge. But during Brandywine’s 30+ years we have innovated and traded numerous unique trading strategies based on sound, logical return drivers. In fact, we pioneered the use of return drivers as being a required basis for a valid trading strategy. Equally important, Brandywine also innovated new portfolio allocation models, such as the “Predictive Diversification” model used by Brandywine over the past two decades. It is these innovations, proven over time with real money at risk, that have contributed to Brandywine’s differentiating performance since the launch of Brandywine’s Symphony Program in July 2011.
As a result of the investment flexibility provided by Brandywine’s size, our 30+ years of professional experience, and our innovative research, we have been able to fulfill our expectation that we would provide our investors with industry outperformance. This is evidenced in the following chart, which compares Brandywine’s performance to that of the CTAs with which we were most frequently compared when we launched Brandywine’s Symphony Program in July 2011.