I bought the access to the Barclay Hedge Fund and CTA database (www.barclayhedge.com) and I spent $ 5000 in order to check which are the best returns around. The final result was that I was really shocked by one side and scared by the other. Shocked because out of almost 5700 players less than 10 has a dream equity line. Scared because this equity line was so smooth that drawdown went under a mere 3%. Something, frankly speaking, that I never reached with my trading. Or at least I never reached so far. For my standard drawdown is usually kept under 10% if I use short term strategies. Let’s watch some of the top performers (an annual compound return of + 20% at least) with a minimum drawdown (less than -10%) and an inception date prior to 2004.

Manalapan Oracle Eagle, USA, annual compound return + 22.49 %, inception date 2001, drawdown – 8.12%, really smooth equity line.

Nest Mile High FIM, Brazil, annual compound return + 28.70 %, inception date 2002, drawdown – 3.49%, really smooth equity line. Long /short equities in Brazil.

Pentium Quantitative Master Fund, France, annual compound return + 27,17  %, inception date 2003, drawdown – 9,16 %, really smooth equity line. Quantitative.

Platinum Partners Value Arbitrage Fund, USA, annual compound return + 20,49  %, inception date 2003, drawdown – 4,45 %, really smooth equity line. Strategies are quantitative, both directional and arbitrage, on energy, equity, short term derivative products.

Among the CTA we found the following astonishing names:

MIGFX, Nevis Island, annual compound return + 20,04  %, inception date 1998, drawdown – 8,74 %, really smooth equity line. 70% discretionary and very short time frame trading.

Stonehenge Capital Management, USA, annual compound return + 20,56  %, inception date 2003, drawdown – 6,46 %, really smooth equity line. Quantitative, it works on one minute time frame with volatility bands that detects one to four risk / reward trades.

Vegasoul Capital Management, Hong Kong – China, annual compound return + 85,06  %, inception date 2002, drawdown – 9,14 %, really smooth equity line. Quantitative with long term trend-following strategies, counter trend short term strategies, pattern recognition strategies.

When considering these astonishing results one first comment comes to mind: what is an average drawdown an average trader should expect ? Let’s say in may experience that average trader with a 50.000 account should be able to withstand maximum a 50% drawdown, that makes it possible to lose 25.000 euro on the account. The money management industry will forgive up to a 30% drawdown, so that if you have some money under management you will be requested to withstand up to a 30% drawdown and this is normal. But in the money management industry already with a 40% drawdown you are dead and you can go to look for another job. On the contrary if you are a discretionary retail trader and you deal in futures it can happen you ramp up to a 50% drawdown. This tells a lot about the minimum account required for trading for a living and over all tells a lot about the fact that it is easy to make a lot of money with a little starting capital but very difficult to make a lot of money with a 100.000 euro account because for the average trader a loss of 50.000 euro in the account is a tragedy. And returns ? If a wonderful compounded average yearly return in the long run of +30% is a lot then you can imagine how much is difficult to make +100% on the trading capital if this is more than 100.000. And this also tells you a lot about how much money you need to have in order to make a living out of the markets.


About Author

Emilio Tomasini is Chief Editor of the Italian edition of TRADERS’ MAGAZINE (www.traders-mag.it), the leading monthly publication in Europe for trading and investment, and since 1999 he organizes the TRADERS’ CUP the most important real money European trading competition (www.traders-cup.it). His personal weekly free newsletter L’Indipendente di Borsa (www.indipendentediborsa.it) is one of the most reputable Italian financial media and counts more than 100.000 readers. His website in English is www.emiliotomasini.com

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