Computer error? Top trend following hedge funds lose out in 2017

By Maiya Keidan

LONDON (Reuters) - Big computer-driven hedge funds such as AQR Capital Management, Aspect Capital and Two Sigma lost money in the first seven months of 2017, with human stock-pickers making better returns.

The average hedge fund made 4.8 percent from the start of the year to July 31, Hedge Fund Research data shows, but a lack of market direction, June's sharp reversal and low volatility has made trading more difficult for automated funds.

"Trend-followers are looking for long, drawn-out, directional moves and look to ride that trend as long as possible," Tom Wrobel, Director of Alternative Investments Consulting at Societe Generale, said.

"When there's a sharp reversal - like in June - they lose money because it goes against the established position."

Returns on hedge funds betting on macroeconomic trends were down by 1.4 percent on average to July 31 after losses of between 1.2 and 1.8 percent in three out of the first seven months of 2017, HFR data showed.

Losses may have been exacerbated by lower market volatility as trend-following funds typically put on larger positions in such conditions, a strategy that would have backfired for them when trends reversed.

Among the biggest losers was AQR Capital Management's $16 billion managed futures strategy, which lost 6 percent in the first seven months, data compiled by BarclayHedge and reviewed by Reuters revealed.

Two Sigma's Compass Fund, which has $2.5 billion in assets under management, lost 4.4 percent over the same period, while

London-based Aspect Capital's flagship $3.9 billion diversified fund lost 3.4 percent, the data showed.

AQR, Two Sigma and Aspect Capital declined to comment.

Winton Capital, the fund set up in 1997 by David Harding, was down 0.8 percent, a source close to the firm told Reuters. Harding helped fund the "remain" campaign in Britain's European Union referendum last year.

And Leda Braga's Systematica Investments' BlueTrend, which was founded in January 2015 after spinning out of former hedge fund BlueCrest Capital, was down 6.4 percent.

However, some computer-driven trend-following funds bucked the trend, including Braga's Systematica Alternative Markets programme, which made gains of 11.2 percent, a source with knowledge of the firm told Reuters.

Also successful during the period were the five main trend-following AHL funds run by Man Group, which all delivered returns of between 0.5 percent and 10 percent over the same period, according to its website.

Man Group is the world's biggest listed hedge fund.

(Reporting by Maiya Keidan; editing by Alexander Smith)