The Winton Absolute Return Futures Fund was launched in July 2017 with the objective of providing UK investors with conservative long-term capital appreciation and positive returns over rolling three-year periods. Here, we examine the 22-year track record of a similar Winton strategy to see how its systematic multi-asset approach has fared.
Winton’s approach to investment management involves researching historical data to identify signals that can predict whether a market is more likely to rise or fall. These signals are combined and encoded into an investment strategy, which computers systematically apply across more than 120 markets to construct a diversified multi-asset portfolio. Profitable signals that Winton’s researchers have identified include momentum (that is, the tendency for markets to trend) and carry. In addition, the strategy contains several fundamental and cross-asset signals that the firm believes are not widely known.
This approach contrasts sharply with those pursued by almost every other investment manager in the Investment Association’s Targeted Absolute Return sector. These other firms mostly hire portfolio managers and analysts, who seek to generate returns by constructing portfolios based on security analysis, macroeconomic theory and gut instinct.
Winton believes that its robust systematic approach to investing has a better chance of success. To see whether this is borne out, we have adjusted the track record of a longstanding Winton strategy similar to that of the Winton Absolute Return Futures Fund for its fees, base currency and level of risk. This makes it possible to assess how the strategy would have fared against the objectives of: (1) conservative long-term capital appreciation; and (2) positive returns over rolling three-year periods.
The purple line in the chart below shows the adjusted track record since Winton’s inception in October 1997. When this performance is compared to GBP 3-month LIBOR + 3%, the randomness of short-term performance is visible, with periods of both over and underperformance. Over the long-term, however, the result is attractive, with compounded investment returns of 6.1% per annum.
The adjusted strategy track record shows there is positive performance for 98% of rolling three-year periods from October 1997 onwards. The chart below compares the distribution of these three-year returns with those of the MSCI World stock index over the same time period. The adjusted strategy track record shows a far more concentrated range of three-year investment outcomes.
While not an explicit objective of the fund, Winton’s strategy has exhibited diversifying properties in the past and we expect it to in the future. This is not least because many, if not most, other strategies are designed with specific and tangible real-world outcomes in view, whereas Winton’s generally is not. In practice, the strategy’s distinct long-short approach has resulted in low long-term correlations with equities and bonds since October 1997, albeit with some large positive and negative correlations over shorter time horizons.
Notes for strategy track record adjusted for currency, risk and fees: 1) The track record is based on the most representative account(s) trading the strategy at the respective time; 2) Actual interest earned on cash balances has been removed and 90% of GBP 3-month LIBOR has been added to simulate a GBP base-currency cash return; 3) The level of portfolio risk has been adjusted downwards to reflect the level of risk at which the Winton Absolute Return Futures Fund operates; 4) Fees of 0.25% management fee and 20% performance fee from inception to 31 August 1998; 1% management fee and 20% performance fee from 1 Sep 1998 to 31 March 2017; 0.9% management fee and 16% performance fee from 1 April 2017 onwards have been added and an annual ongoing charges figure of 0.9% has been deducted to reflect the fee structure of the Winton Absolute Return Futures Fund.
Important Information: The Winton Absolute Return Futures Fund (the "Fund") is a sub-fund of Winton UCITS Funds ICAV (the "Company"). The Company is authorised by the Central Bank of Ireland as an undertaking for collective investment in Transferable Securities pursuant to the UCITS Regulations. This webpage is prepared by Winton Capital Management Limited ("Winton") which is authorised and regulated in the United Kingdom by the Financial Conduct Authority. Registered Office: 20 Old Bailey, London EC4M 7AN.
This webpage is a summary only and potential investors must refer to the prospectus, the supplement and the Key Investor Information Document ("KIID") for the Fund. This webpage is not a recommendation to purchase or sell any investments.
The Fund currently has or intends to have more than 35% of its total holdings in bonds issued by or guaranteed by: EU member state, by its local authorities, by any other OECD member state, or by any public international body of which one or more EU member states are members.
The value of an investment and any income derived from it can go down as well as up and investors may not get back their original amount invested. The information on this webpage is believed to be materially correct but Winton makes no representation or warranty as to its accuracy or completeness and accepts no liability for any inaccuracy or omission. This material is not suitable for distribution in the United States or to US Persons.
Who is the Fund for?
- Investors seeking conservative capital appreciation over the long term.
- Investors seeking a strategy that has the potential to provide positive returns in a variety of market environments.
- Investors seeking exposure to multiple asset classes and markets as part of a diversified portfolio.
Key risks to consider
- Absolute return – The Fund aims to provide positive returns over a rolling three-year period, but a positive return is not guaranteed over any time period and capital is at risk.
- Derivatives – The Fund invests in futures and forwards, which are financial derivative instruments that can increase the size of gains and losses.
- Commodity-related and macroeconomic risk – The Fund will gain exposure to the performance of equity indices, government bonds, interest rates, currencies and commodities, all of which can be volatile and influenced by economic and political developments.
- Process risk – There may be issues with the systems and mathematical models that Winton uses to implement the Fund's strategy or the processes and procedures related to those systems.
A more comprehensive list of risks is provided in the Company's prospectus and Fund supplement.