Human investment managers risk obsolescence
Illustration for 'Automated algorithms offer greater choice, but risks remain'
Human investment managers are at risk of being rendered obsolete by rapid advances in algorithmic trading technology, according to the brains behind one of the world’s leading computer-driven hedge funds.
Leda Braga, who runs the $8.9bn BlueTrend hedge fund, said traditional investment approaches might soon struggle to keep ahead of so-called “systematic” computer models, as human fund managers are undercut by cheaper and more efficient technology.
“Right now there is a place for both approaches,” she said. “That is the present. But then we have the future. Does the future hold a world where the systematic approach dominates? I suspect yes.”
She compared it to the world of Swiss watchmaking. “There is still a place for artisanal watches. But if you really want to know the time in an efficient way then you buy a quartz watch.”
Ms Braga, a Brazilian-born engineer, is one of a handful of women to have risen to the top of the hedge fund world. Her comments come as many traditional fund managers have struggled to make money for clients in the past year, with computer-driven hedge funds outpacing most of their human rivals in 2014.
Late last year Ms Braga, who created the systematic computer trading business at hedge fund BlueCrest, spun off her two funds into a new separate $8bn hedge fund called Systematica Investments.
While human fund managers had the ability to interpret market colour and psychology in a way computer-driven systems could not, Ms Braga said the human mind would never be able to keep track of the quantity of information that systematic funds can.
“In the case of our equities fund we trade 4,500 stocks. As a human being it would be very difficult to keep track of and control risks across that number of stocks,” she said.
“There is now more pressure on managers to be transparent. But if investors want to see your portfolio and you only have three ideas, you will be sensitive about showing what you are doing. But if you use a technique where you are trading across hundreds of markets, this is not a problem.”
We were not long [fixed income] as a punt — we had analysed the data. Because the systematic approach does this in an objective way, it means we can be contrarian
- Leda Braga, BlueTrend
Her BlueTrend fund has risen 7 per cent this year to the middle of January, having gained 8.3 per cent during the whole of last year.
Computer-driven hedge funds struggled during several years of large-scale central bank intervention in global markets. But last year their cold ability to make trades outside the consensus helped them make money.
Ms Braga said her fund had bet on bond yields falling last year, although most strategists believed that a rise in US interest rates meant yields could only go up.
“My colleague said at the time, ‘Only the fools and the trend followers are long fixed income in 2014.’ But it paid off,” she said. “We were not long as a punt, but because we had analysed the data. Because the systematic approach does this in an objective way, it means we can be contrarian.”