How Covestor macro models perform versus hedge funds

By Raphaël Mennicken CFA, Chief Investment Officer of Covestor

How are Covestor portfolios doing against hedge fund peers? Let’s take a look at one comparable group – macro hedge funds versus Covestor models with similar macro strategies.

Hedge Fund Research’s HFRX Macro Index measures performance from hedge funds with

a broad range of strategies in which the investment process is predicated on movements in underlying economic variables and the impact these have on equity, fixed income, hard currency and commodity markets… the overriding investment thesis is predicated on the impact movements in underlying macroeconomic variables may have on security prices. [more]

The HFRX Macro Index was down 2.14% in the period 1/1/11-6/30/11 (source). The Wall Street Journal reports that a similar hedge fund index, the Dow Jones Credit Suisse Global Macro Index, was down 4% in the period. Investors in hedge funds typically pay “2 and 20” – a yearly 2% management fee, plus 20% of positive returns go to the fund’s managers as a performance fee.

Let’s compare that to first half performance for seven Covestor models that we define as Macro (our definition: “aims to profit from changes in the direction of economies”) and that I believe are comparable to HFRX Macro Index constituents. After the performance of each, I offer a brief explanation in italics of why the model seems to have performed in this way so far this year:

  • 10-in-1 MTS from Wushan Chan +9.38% Good participation on the upside, especially since mid-June
  • Asset Allocation from Shine Financial +2.98% Good medium-term macro calls
  • Interest Rate and Currencies from System Research +2.35% Quant model worked well when the market fell in May
  • Macro Plus income from Capital Ideas +1.85% Good medium-term macro calls, plus strong stock selection
  • ETF Only from Capital Ideas -0.99% Poor decisions at critical moments
  • Focus ETF* from Analytic Investment Management LLC -2.97% Quant model needs some strong trends to perform well. Suffers when trends reverse, as they did in the first half of 2011
  • Minimizing Risk from Empire Advisors Group LLC  -3.50% Quant model was not fully invested during rallies, so missed out on performance

If you’d like more information on any of these models, we’re happy to discuss – you can reach us here (


HFRX Macro Index definition:

HFRX Indices data:

“Hedge Funds Lagged S&P 500 In June” MarketBeat, The Wall Street Jounal, 7/6/11

* Editor’s note: As of 9/12/11, the Focus ETF model is no longer available on Covestor