Blackheath’s sentiment is rising

January 31, 2012 06:00 PM
Trader Profile

When Christopher Foster expressed interest in working in futures after graduating from the University of Toronto, his dad, a portfolio manager, told him there was only one place in Toronto to find a job in that field — the Friedberg Mercantile Group (FMG).

Albert Friedberg ran the Toronto-based futures investment and brokerage firm and Foster pestered Friedberg until he gave him a chance.

Foster worked as a broker and then an associate portfolio manager, and he served on the investment committee for FMG from 1989 to 2000. But most importantly, he learned the business from Friedberg. “He was a passionate teacher,” Foster says.

While Friedberg took a global macro approach, one element of his trading that intrigued Foster was the study of sentiment. “You know how these [global macro] traders are,” Foster says, “they throw everything into the hopper and trades will come out. He was a fundamental trader, but he [also] looked at sentiment.”

While sentiment for Friedberg was just another factor to consider, Foster wanted to systematize the approach and went about building a strategy based on sentiment when he left FMG.

The industry was becoming more institutional and the era of managers producing huge profits with large drawdowns was ending. “[Friedberg] had a great long-term record, but the volatility was just mind numbing,” Foster says.

“I knew the appetite for those types of programs was waning. Investors were becoming much more sensitive to volatility,” he says. “I wanted to develop something that was much more systematic, had more [stringent] money management rules and used sentiment. That was the birth of the program in the late ‘90s.”

He would move on to Scotiabank in 2000 where he developed his sentiment strategy and pitched it to clients. One client, Chris Harrop, who would become a partner in the fund, liked the idea so much that that he helped set up an offshore fund to trade it. The two ran it as a separate offshore fund, Blackheath Offshore Limited, while Foster was still at Scotia. In 2008, they went off on their own, registering Blackheath in Canada in 2009 and in the United States in 2011.

The program trades 25 liquid U.S. futures markets on a medium-term basis and has produced a compound annual return of 16.97% since 2003. It was up 16.80% for 2011 through November. Blackheath manages $31 million in its sentiment strategy.

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About the Author

Editor-in-Chief of Modern Trader, Daniel Collins is a 25-year veteran of the futures industry having worked on the trading floors of both the Chicago Board of Trade and Chicago Mercantile Exchange.