Graham Capital Management is a multi-strategy hedge fund and was the ninth-best performing hedge fund in Insider Monkey’s database during Q2 according to our formula for calculating returns. Graham Capital was founded in 1994 by Kenneth G. Tropin with $30 million of proprietary capital. Within seven years of its inception it exceeded $1 billion in total AUM, and in 2015 managed to pass the $10 billion mark in total AUM.
Its founder and Chairman, Mr. Tropin, is in charge of running the investments of the fund’s proprietary capital. Prior to founding Graham Capital Management, Mr. Tropin worked at John W. Henry & Company as President and Chief Executive Officer, and at Dean Witter Reynolds as Senior Vice President and Director of Managed Futures. He was also a Chairman of the Managed Funds Association and its predecessor organization, in whose founding he played an important part back in the 1980s. Mr. Tropin holds a Bachelor’s degree from Goddard College.
The fund’s investment philosophy is centered around the idea that the best low-risk returns can be obtained by using a variety of investment strategies in many different markets. Some of the strategies Graham Capital Management applies include Quantitative Trend Following, Quantitative Macro, and Discretionary, to name a few. Aside from public equity and fixed income markets, the fund also invests in alternative markets, such as futures markets and currency.
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Reviewing Graham Capital Management’s returns, we’ll start with some earlier figures. D6V, one of its macro funds, has brought back big positive returns throughout the years. Since D6V’s inception in 2004, the fund generated an annualized return of 7.12% through 2011. Its performance from 2006 until 2011, during which it returned an average of 6.56% annually, exceeding the HFRI Macro Index of 6.39% for the same period, put D6V among the top 48% of all global macro funds. 2008 was one of the best years for Graham Capital Management as all 13 of its trend-following funds earned money as reported by Institutional Investor; most of them reported returns between 20% and 52%, which was particularly outstanding given the market declined by 37% in 2008. Mr. Tropin pulled in $120 million in earnings and his fund was once again among the 100 largest hedge funds in the world.
Graham Capital Management’s most recent performance figures have not been as impressive according to Business Insider. Last year, 13 of its 14 strategies resulted in a negative return. Its flagship Tactical Trend strategy was down 2.3% in 2017 through July of that year, while its Tactical Trend Capped Beta, a derivative of its flagship strategy, lost 15.4%. Graham’s Absolute Return Class A fund, Graham Capital Management’s largest discretionary strategy, was down by 5.2%, and its K4D-10V lost 3.03%. Most of these funds manage billions of dollars each. In spite of these disappointing performance figures in 2017, Graham Capital Management still managed to raise $1.5 billion from its clients, which was mainly allocated to its quantitative strategies.
More on Graham Capital Management’s more recent performance and its holdings on the next page.
2018 didn’t start off much better for Graham Capital Management. In February, its biggest fund, Tactical Trend, lost 8.7% and is down by 3.3% for the year, while its K4D-15V Fund lost 9% in the same month and is down by 4.3% for the year, according to Bloomberg. As per most recent data, Graham Capital Management has around $15 billion in assets under management.
Our own calculations of the performance of Graham Capital’s 13F portfolio paint a more promising picture, though an incomplete one. Among stocks with a value of at least $1 billion, of which Graham Capital had 71 in its portfolio, those stocks returned an average of 19.8% in Q2 based on the size of those positions at the end of Q2. If nothing else, Graham Capital scored strong returns from its long positions in larger companies in Q2.
Insider Monkey’s flagship strategy identifies the best performing 100 hedge funds at the end of each quarter and invests in their consensus stock picks. This way it is always invested in the best ideas of the best performing hedge funds and is able to generate much higher returns than the market. Since its inception in May 2014, our flagship strategy generated a cumulative return of 121% vs. a cumulative gain of 66.6% for the S&P 500 ETF (SPY) (see the details here).
The biggest new position the fund acquired in the second quarter of 2018 was in Twenty-First Century Fox Inc (NASDAQ:FOX), buying 140,500 shares worth around $6.98 million, followed by a new 400,000-share position in General Electric Company (NYSE:GE), as the fund attained a position valued at $10.26 million on June 30.
Some of the companies in which Graham Capital Management is seriously losing interest include Apple (AAPL), in which the fund lowered its stake by 93% in Q2 to 5,389 shares worth just under $1 million, and NXP Semiconductors N.V. (NXPI), in which the fund decreased its stake by 72% to 112,151 shares, leaving it with a position valued at $12.25 million. Interestingly, hedge funds that we track are becoming more bullish on NXP Semiconductors N.V. (NXPI), as 90 investors reported long positions in the company as of the end of the second quarter, up by 22 from the end of the first quarter. Seeing this optimism from smart money investors, it can be questioned whether Graham Capital Management should have lowered its position in the company.
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