Man's AHL, Winton Funds Ride Futures to Best Start Since 2001

April 9 (Bloomberg) -- Man Group Plc and Winton Capital Management Ltd. are off to their best start in seven years as falling stock markets and soaring gold and wheat prices propel profits for funds that trade commodities and financial futures.

Managed futures funds gained by an average 6.3 percent in the first quarter, the most since 2001, according to the Newedge CTA Index. The strategy rose the most among eight hedge-fund categories as hedge funds fell an average 3.9 percent, according to New York-based Morgan Stanley's MSCI Hedge Invest Index.

Commodities futures climbed to new highs in the quarter, while the U.S. dollar fell to a record low 1.58 euros. The moves, which extended trends from 2007, created a profitable environment for managed futures funds, which use banks of computers to weed through thousands of data points to trade futures ranging from U.S. Treasury bonds to Malaysian palm oil.

``We can particularly benefit in a prolonged crisis because it's a long trend,'' said Tim Wong, head of Man's AHL Diversified Plc unit, in an interview from his office on London's Sugar Quay, a remnant of Man's roots as a sugar broker 225 years ago. ``When markets are directionless, it's the worst time.''

AHL, the trading system behind about $22 billion in Man funds, rose 13 percent in the quarter, its best start since 2001, according to filings with the U.K.'s Regulatory News Service. London-based Winton Capital's $6.3 billion Winton Futures Fund gained 11 percent, according to data compiled by Bloomberg.

Back in Favor

Managed futures funds, also known as commodities trading advisers, gained 9.5 percent in the past 12 months, compared with the 2.15 percent decline by the MSCI index. The advance occurred after the strategy had lost favor among investors.

``On at least two occasions in the last 10 years the cry went up that the macro and CTA game was over, but each time they came back, as they have done again in the last nine months,'' said Martin Harrison, the head of U.K. mutual funds for the GAM unit of Zurich-based Julius Baer Holding Ltd.

Managed futures tend to do best when financial markets slide, said Aref Karim, who runs Quality Capital Management Ltd.'s largest managed futures fund, which rose 23 percent in the quarter.

``When there's fear in financial markets, you always find that managed futures strategies tend to give some protection,'' said Karim, chief executive officer of Weybridge, U.K.-based Quality Capital, which has $616 million in managed funds. ``It's great insurance.''

`Trust and Verify'

Union Bancaire Privee invested in managed futures funds this year and cut back on strategies that depend on leverage or merger arbitrage. Still, UBP, Europe's second-largest hedge-fund investor, has reservations.

``It's a trust and verify strategy,'' said Shoaib Khan, a senior portfolio manager who helps oversee $57 billion in hedge- fund investments at UBP in Geneva. ``I don't want to say black box, but it's not as transparent as you'd like.''

CTAs generally are more volatile than their counterparts in rival strategies, dimming the lure for investors with a low appetite for risk.

Mulvaney Capital Management Ltd., a $127 million managed futures fund based in London, rose 57 percent in the first two months of 2008, the most recent data available. The same program was down 33 percent in July and August.

``This time the boot is on the other foot,'' said Colin Lloyd, head of investor relations at Mulvaney Capital. ``For a systematic manager one of the greatest difficulties is to resist the temptation to say the world has changed and start recalibrating the model.''

Agnostic Approach

Managed futures suffer their worst performance when markets suddenly reverse, explaining why some funds gave up gains in March when crude oil, wheat and gold fell from highs.

David Harding, one of the original partners in AHL, said an ``agnostic'' approach to investing often has critics ready to pounce.

``Most people believe it doesn't work, or it did it soon won't work,'' said Harding, founder of Winton Capital, which oversees $13.6 billion. ``We almost never do anything based on our opinions. If we do, it's based on opinions about mathematical phenomenon and statistical distribution, not opinions about Fed policy.''