Computer-Driven Hedge Funds Surge Ahead Amid Chaotic Markets

A $200 billion corner of the hedge funds industry dominated by computer-driven algorithms has been making the most of wild swings in global markets, putting many of those funds on course for a record year of gains.

Aspect Capital’s Diversified Programme returned 5.2% last month to bolster its gains for this year to nearly 44%, according to an investor document. Tulip Trend Fund rose more than 58% through September, while the Lynx fund was up in excess of 45%, according to updates on their websites.

The funds, which use computing power to analyze vast amounts of data to predict the direction of stocks, bonds, currency and commodities markets, are emerging as one of the biggest winners among hedge fund strategies this year as soaring inflation and rising interest rate spark the volatility they thrive on.

Investors are piling in as they see these funds as a way to guard their portfolios against unforeseen shocks. They allocated a net $7.4 billion to them through August, while the industry as a whole suffered almost $45 billion of outflows.

“Things are breaking,” said Douglas Greenig, whose firm Florin Court Capital in London runs a quant funds that’s up 24% this year. “In this context, investors need some strategies to own the tails,” he said referring to investment strategies that try to limit losses or even gain in extreme markets.