Crowd Behavior Strategy Comes To Managed Accounts

Jul 9 2012 | 12:13pm ET

The world's first and only Twitter-based hedge fund came and went with a whimper, but another hedge fund firm isn't giving up on crowd-sourcing.

Or crowd behavior, anyway: HED Capital Management is set to roll out a managed account program using its quantitative crowd behavior signals strategy. That system isn't new—it's older than Twitter, in fact; HED managing director Richard Edwards and his colleagues built it 13 years ago—but HED has struggled to find a way to deploy it for investment.

"We decided that the single most important thing that moved markets around was the dynamics of the crowd," Edwards to Hedge Funds Review. "Very few market movements are news-related. They also depend on the crowd's reaction. So if we can find a way to read the crowd, we can find a way to read the price."

HED has been distributing its trading signals since 1999 and to a wider set of clients, including hedge funds, for five years. Its managed accounts will likely be available to investors by November, following a trial period. The system already has five years of real-time testing, which have produced 50% returns with no leverage.

While the model is highly quantitative, seeking to look at how cycles form and how feedback leads to price trends, Edwards said the managed accounts will be discretionary, rather than purely quantitative. Half of the accounts will be invested in U.S. stock market futures and half in commodities, bonds and currencies.

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