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The investment objective of the Winton Capital Management's Diversified Program is to achieve long-term capital appreciation through compound growth. This goal is achieved by pursuing a diversified trading scheme that does not necessarily rely upon favorable conditions in any particular market, or on market direction.

The Diversified Program seeks to combine liquid financial instruments offering positive but low Sharpe ratios (meaning that profits have been achieved with a certain level of risk) and generally low correlation over the long term to other markets such as equities and fixed income. Please note, however, that there is no assurance that the Diversified Program will have low correlation to other markets, even over the long-term, and over the short-term the Diversified Program may be highly correlated to other markets.  Past Results are not necessarily indicative of future results.  The risk of loss in trading futures, options and off-exchange forex can be substantial. 

The Diversified Program employs what is traditionally known as a “systematic” approach to trading financial instruments. In this context, the term “systematic” implies that the vast majority of the trading decisions are executed, without discretion, either electronically or by a team responsible for the placement of orders, based upon the instructions generated by the Winton Computer Trading System. The majority of trades in the Diversified Program are in fact executed electronically. The Diversified Program blends short-term trading with long-term trend following, using multiple time frames in addition to multiple models. As its name implies, the Diversified Program allocates for maximum diversification. A sophisticated system of risk management is evident in all aspects of the program.

The Winton Computer Trading System is a proprietary, computer-based system best described as the “output” of a complex schema of numerous computer programs and subprograms developed by Winton’s research team. The Trading System is maintained and managed by Winton’s Production Team, the team responsible for encoding and running the computer programs and sub-programs.

The Winton Computer Trading System instructs the Diversified Program on how to respond to unfolding market events in order to profit from price movements. The Trading System tracks the daily price movements and other data from the markets it follows, and carries out certain computations to determine each day how long or short the portfolio should be to maximize profit within a certain range of risk. If rising prices are anticipated, a long position will be established; a short position will be established if prices are expected to fall. As a result of its statistical research, Winton believes that each trade executed by the Diversified Program will have a slight statistical advantage leading to profits over time.  Past Results are not necessarily indicative of future results.  The risk of loss in trading futures, options and off-exchange forex can be substantial.

The Diversified Program can be thought of as more “technical” than “fundamental” in nature. The term “technical analysis” is generally used to refer to analysis based on data intrinsic to a market, such as price and volume. It is often contrasted with “fundamental analysis” that relies upon analysis of factors external to a market, such as crop conditions, the weather or supply and demand One feature of a trend-following system is that it attempts to take advantage of the observable tendency of the markets to trend, and to tend to make exaggerated movements in both upward and downward directions. These exaggerated movements can be thought of as resulting from the influence of crowd psychology, or the herd instinct, amongst market participants.

Trend-following systems are frequently unprofitable for long periods of time in particular markets or market sectors, and sometimes for spells of longer than a year or so, even in large portfolios. However, in Winton Capital Management’s experience, over a span of years such an approach has shown to be profitable in our track record to date.  Past Results are not necessarily indicative of future results.  The risk of loss in trading futures, options and off-exchange forex can be substantial.

The Diversified Program relates the probability of the size and direction of future price movements with certain indicators derived from past price movements to produce algorithms that characterize the degree of trending of each market at any point in time. While all trend-following systems function in this way to some degree, the unique edge possessed by the Winton Trading System lies in the quality of the research underlying its algorithms. These enable Winton’s Trading System to suffer smaller losses during the markets’ inevitable whipsaw periods and to take better advantage of significant trends when they occur. Winton Capital Management is continually involved in improving upon its models through its commitment to research.

In addition to its trend-following models, the Diversified Program contains certain “nondirectional” models that derive their forecasts from factors often excluded by technical analysis. In these quantitative systems the primary input is likely to be information about the yield curve or an economic variable rather than market price. These models work in the same way as those based on technical analysis, except that they use a different set of forecasting variables.

The Winton Computer Trading System instructs and adapts the Diversified Program’s trading exposures automatically and continuously. As is to be expected with any research-driven trading system, the Winton Computer Trading System is dynamic. It is subject to modification over time as new relationships are discovered. This research may result in the development of additional computer models or revisions to existing models.

Examples of research and investigation that might lead to the modification of the Winton Computer Trading System include research pointing to changes in the liquidity or volatility of markets, the interpretation or meaning of data or the long-term expectation of market interrelationships. Another key factor contributing to change is simply the availability of new data.

In short, the Diversified Program relies not just on the trading system, but a process. Inevitably, as a result of research developments, Winton Capital Management must make decisions about the timing, frequency and size of modifications to the trading system. Certain changes may occur on a daily basis whilst others may involve more significant adjustments and therefore occur less frequently. Generally, non-substantive changes may be carried out to the trading system at the discretion of Winton Capital Management’s CIO and the Production Team, or respective equivalent teams in the case of Winton’s cash equity strategy and high frequency trading strategy. However, material changes require the approval of both Winton’s Trading System Committee and Winton’s Chairman. Its Trading System Committee meets monthly, and its membership is comprised of all senior heads of Winton’s research teams, the Chairman, the CIO, the deputy CIO, COO, CEO and the Head of Risk Management.

Occasionally, external, unforeseen or dramatic events may impact the markets. These exceptional market events by their very nature are often difficult to predict and have uncertain consequences. Examples of such exceptional market events include loss of market liquidity, the threat of counterparty risk as presented in the credit default swap debacle of 2008, the closure of an exchange (as occurred after the terrorist attacks of September 2001), the introduction of the Euro, the closure of the tin contract in 1984, the suspension of the Hong Kong Futures Exchange in 1987 and the suspension of trading in the Malaysian Ringgit in 1997.

Winton Capital Management’s trading principals (Winton’s Chairman and CIO) may decide that such events fall entirely outside the scope of the research upon which the Diversified Program is based and may determine to exercise some discretion rather than follow the dictates of the system. Whilst discretionary inputs are generally not essential to the effectiveness of a “systematic” trading model, it is nonetheless important to recognize that given the often rapid and unpredictable nature of some market events, not every decision to change the trading system can be conceived as entirely “systematic” and may be more “discretionary” in nature. Examples of discretionary actions might include decreasing the margin-to-equity ratio, liquidating all positions in certain markets or declining to execute an order generated by the trading system. Such discretionary decision-making would normally only be taken in order to reduce risk and would generally be temporary in nature. It is important to stress that these acts may not enhance the performance of the Diversified Program over what might have otherwise been achieved without the exercise of such discretion.

At present, the Diversified Program has no pre-set capacity limit. This is not to suggest Winton Capital Management’s lack of concern about capacity; indeed, it is an issue of great importance to Winton’s research team and significant resource is dedicated to understanding factors that impact upon it. Winton Capital Management believes that its ability to manage capacity is, to a degree, related to the success of its ongoing research initiatives in this area. For example, part of Winton Capital Management’s research is focused on the studying of the mechanics of open interest in order to better understand liquidity in global futures markets, looking beyond Winton at the industry as a whole. Winton may, in its absolute discretion and at any time, impose or modify the capacity limits of the Diversified Program.

The Diversified Program tracks approximately 100 diversified, highly liquid financial instruments. At any point in time, it may be holding long or short positions or hold no position at all in each of the markets it follows. The Diversified Program’s portfolio may consist mainly of positions in the following futures markets: stock indices; bonds; short-term interest rates; currencies; precious metals; base metals; crops; livestock; and energies. In addition, the Diversified Program may trade in certain OTC instruments, such as, but not limited to, forward contracts on foreign exchange and interest rates and swaps. All OTC FX or currency instruments are off-exchange foreign currency transactions and Winton Capital Management does not engage in retail forex transactions. In addition, the Diversified Program may also trade in government securities such as bonds and other similar instruments, listed cash equities and CFDs. Through its research initiatives, Winton Capital Management is constantly looking for new opportunities to add eligible markets to the portfolio, thus further increasing the portfolio’s diversification.

The Diversified Program strives to maintain a diversified portfolio because holding positions in a variety of unrelated markets has been shown, over time, to decrease system volatility. Research has demonstrated that use of a sophisticated and systematic schema for placing orders in a wide array of markets increases the possibility that an overall profit may be realized after a sufficient period of time. Whilst Winton Capital Management intends to seek to diversify the portfolio as it deems appropriate and consistent with the investment objective of the Diversified Program, the extent of diversification of the portfolio may change from time to time. If the portfolio is concentrated in a small number of investments, the portfolio will be subject to a greater level of volatility.

The management of risk is an integral part of the Winton Computer Trading System. Return and risk are two sides of the same coin. It is impossible to achieve a given level of return without accepting a certain amount of risk. Winton Capital Management's focus within risk management is on targeting, measuring and managing risk. Owing to the leverage inherent in futures trading, position sizes are set according to Winton Capital Management’s expectation of the risk that such positions will provide rather than the amount of capital required to fund such positions. In the experience of Winton Capital Management’s management, efforts to preserve capital have a greater effect on rate of return than does the identification of profitable trading opportunities. The following serve as examples,  but do not begin to describe the many efforts Winton makes to attempt to limit risk. However, there is no assurance that any of these efforts will succeed in lessening the possibility or size of a loss.

Each day, the Winton Computer Trading System sets volatility parameters (known as the “instantaneous forecast standard deviation”) for each position held in the portfolio. The purpose of these parameters is to estimate the likely size of a market shift (whether up or down), in much the same way as the futures exchanges estimate the likely market shift when deciding how to set the initial margin for a future or the daily price limits for a market.

The primary determinant of the daily volatility parameters is the amount of leverage or level of gearing used by the Diversified Program. The leverage or gearing may be measured in terms of the Diversified Program’s margin-to-equity ratio. This ratio is calculated by dividing the amount of margin posted with the futures commission merchant by the value of the portfolio. The Diversified Program’s long-term annualized volatility target is currently approximately 10% (please note that if applied to a managed account, a fully-funded managed account is assumed). However, it should be noted that the Diversified Program’s instantaneous forecast standard deviation (defined as the instantaneous risk Winton expects within the 24 hours following that particular instant) may vary outside these limits. In order to target a given level of long-term risk the instantaneous risk is allowed to fluctuate within a range around the long term risk target. In order to achieve the long-term risk target the correlation between different markets is estimated by the Diversified Program, and is employed in the calculation of the overall level of gearing which is reset on a daily basis.

The level of gearing typically used by the Diversified Program is normally determined by targeting a long-term daily standard deviation of less than 1 percent of the value of the portfolio as a whole. The long-term standard deviation refers to the long-term average risk that Winton expects over a number of months. However, it should be noted that the Diversified Program’s instantaneous forecast standard deviation (defined as the instantaneous risk Winton expects within the next 24 hours) will vary outside these limits. In order to maintain a given level of long-term risk, the instantaneous risk is allowed to fluctuate within a range around the long-term risk target.

Additionally, from time to time, the long-term standard deviation (defined as the long term average risk that Winton expects over a number of months) may also be above or below these limits, thereby having an impact upon the level of gearing used by the Diversified Program. For example, in the event that exceptional market conditions arise, such as the threat of closure of an exchange or other loss of liquidity, it may be determined to operate the Diversified Program at a lower level of gearing.

Slippage refers to the difference between the market price at the time an order is placed to purchase or sell a contract and the actual price paid to make the purchase or sale. One of the main causes of slippage is attempting to fill an order that is too large to be absorbed easily by the market. Winton Capital Management monitors slippage primarily to make prompt adjustment in position size and thereby avoid having to give up potential profits.

Winton Capital Management conducts frequent stress testing of its models utilizing proprietary simulation software which attempts to measure risk from several perspectives.

The trading methods applied by Winton Capital Management in its Diversified Program are proprietary, complex and confidential. As a result, the explanation above is of necessity general in nature and not intended to be exhaustive. Winton Capital Management plans to continue the research and development of its trading methodology and, therefore, retains the right to revise any methods or strategy, including the technical trading factors used, the financial instruments traded and/or the money management principles applied. Such ongoing revisions, unless deemed material, will not be made known to clients.

The trading strategy and account management principles described here are factors upon which Winton may base its trading decisions. Accordingly, no assurance is given that all of these factors will be considered with respect to every trade or recommendation made on behalf of the Diversified Program or that consideration of any of these factors in a particular situation will lessen a client’s risk of loss or increase the potential for profits.
 

Winton Capital Management will select the type of order to be used in executing client trades and may use any type of order permitted by the exchange on which the order is placed or accepted by a counterparty where the order is executed over the counter. Winton Capital Management may place individual orders for each account or a block order for all accounts in which the same financial instrument is being cleared through the same Futures Commission Merchant (“FCM”) or broker-dealer. When using a block order, Winton Capital Management will allocate trades to accounts using a proprietary algorithm. The aim of this algorithm is to achieve an average price for transactions as close as mathematically possible to the mean for each account. This takes the form of an optimization process where the objective is to minimize the variation in the average allocated price for each account. On occasion, it may direct the FCM or broker-dealer for the accounts to apply its own neutral order allocation system to assign trades. Partial fills are allocated in proportion to account size.
 

Winton Capital Management was founded by David Winton Harding, Martin Hunt and Osman Murgian and started trading in October 1997. David Winton Harding is one of the pioneers of trend-following systematic trading in Europe. Whilst at Winton Capital Management, David Winton Harding has been registered with the CFTC as an Associated Person and listed as a Principal of Winton Capital Management and has been an Associate Member of NFA since January 1998.

David Winton Harding was born in Oxford in 1961 and graduated from Cambridge University with a First Class Honors degree in Natural Sciences specializing in Theoretical Physics. In September 1982, he joined stockbroker Wood MacKenzie as a graduate trainee and became involved with futures trading just as the London International Financial Futures Exchange opened. A year later, in September 1983, he left Wood MacKenzie and moved to Johnson Matthey & Wallace, a commodity futures broker, where he was involved in gilt trading and sales. When that company closed due to the failure of its parent company, in November 1984 David Winton Harding left it and joined Sabre Fund Management, one of the UK’s first Commodity Trading Advisors where he was an Associate Member of NFA from April 1986 until July 1988 and registered as an Associated Person from May 1986 until July 1988. In his new position, for the first time, David Winton Harding was able to apply his scientific training to develop techniques for trading a wide variety of futures markets.

 
In November 1986, David Winton Harding left Sabre Fund Management to join Brockham Securities, the Adam Family sugar trading company, where he assisted in development and marketing of futures fund management services. In February 1987 he left to form Adam, Harding and Lueck Ltd (“AHL”). AHL brought together the programming and system development abilities of Michael Adam and Martin Lueck with Mr. Harding’s research and marketing skills. AHL rapidly became a successful Commodity Trading Advisor and in 1989, The Man Group PLC (formerly ED&F Man PLC) acquired a 51% stake and began distributing AHL’s products globally. Over the next five years, the three principals built a firm with assets under management of $300 million and a staff of nearly 100, including research teams developing mathematical and statistical trading strategies. AHL is still the flagship fund of the The Man Group which is a FTSE 100 Company. Mr. Harding was an Associate Member of NFA and an AP of Man AHL USA Corp from July 1988 until January 1996. He was also listed as a Principal of Man AHL USA Corp from July 1988 until February 1995.

In 1993, David Winton Harding was invited to present a paper to a special symposium of London’s prestigious Royal Society, on the subject “Making Money from Mathematical Models.” This paper was subsequently incorporated into two books.

In 1994, ED&F Man Group floated on the London Stock Exchange and acquired the remaining 49% of AHL. David Winton Harding then formed and ran Man Quantitative Research, an in-house advanced statistical research team until August 1996.

In August 1996 David Winton Harding left ED&F Man Group and took leave until February 1997. In February 1997, he co-founded Winton Capital Management with Martin Hunt and Osman Murgian, one of AHL’s early shareholders. David Winton Harding continues to lead Winton Capital Management’s research efforts.

David Winton Harding is also a trustee of the Winton Charitable Foundation, which in 2007 endowed the Winton Professorship of the Public Understanding of Risk in the Department of Pure Mathematics and Mathematical Statistics at Cambridge University. Similarly, in 2008, the David Harding Foundation endowed the David Harding Centre for Risk Literacy at the Max Planck Institute in Berlin, Germany.

Martin John Hunt, born in 1962, first became involved in managed futures in October 1983, as a trainee trader for the Futures Fund Management Ltd, a Commodity Trading Advisor. In December 1985, Martin Hunt left this position and in January 1986, moved to Sabre Fund Management, as operations manager. In February 1988, he left Sabre to join AHL and from this time until 1991 he was responsible for managing its trading operations and establishing a trading facility in Switzerland. In July 1991 Mr. Hunt left AHL.

In August 1991, Martin Hunt assumed responsibility for marketing and back office operations at Royston Investments Ltd, which at the time was a CFTC-registered Commodity Trading Advisor. Whilst at Royston Investments Limited, Mr. Hunt registered with CFTC as an Associated Person and became an Associate Member in October 1991. In March 1994, he left Royston and his status as an NFA Associate Member and registered Associated Person was subsequently terminated in January 1996. In March 1994, Martin Hunt established himself as an independent marketing and compliance consultant to firms in the UK managed futures industry before working at Palatinate Investment Management Limited, a London-based Commodity Trading Advisor, from August 1994 until January 1997 as Director of Marketing, Operations and Compliance.

In January 1997, David Winton Harding recruited Martin Hunt to handle the formation, structuring and subsequent day-to-day running of Winton Capital Management’s operations. Effective, October 2010, Martin Hunt was appointed as a Non-Executive Director and no longer is involved in Winton Capital Management’s daily management. Since January 1998, Mr Hunt has been registered with the CFTC as an AP and listed as a Principal of Winton Capital Management and has been an Associate Member of NFA.

Osman Murgian, born in 1934, is a founding director of Winton Capital Management and listed as a Principal with NFA since January 1998. Educated at Brighton College in England, Osman Murgian was also one of the original shareholders and directors of AHL. Osman Murgian lives in Nairobi, Kenya, and is the owner of or an investor in a number of international businesses ranging from real estate to transportation. Osman Murgian has a beneficial interest of more than 10% of Winton Capital Management’s share capital and has no involvement in the day to day management of Winton Capital Management. This interest is held by Samur (Jersey) Ltd and Amur (Jersey) Ltd both of which are investment holding companies ultimately owned by Osman Murgian’s family foundation.

Anthony Hamilton Daniell, born in 1954, spent ten years in the British Army during which time he achieved a civil engineering degree from Bristol University. In March 1983, Anthony Daniell began his career in the financial sector at David Allsopp and Partners, a UK stockbroker, as an equity analyst following US defense companies.   He moved to Rowe and Pitman, also a UK stockbroker, in April 1986, where he became Co-Head of US Equity Sales.

From March 1994 to December 2001, Anthony Daniell was Co-Head of Emerging Markets and then Head of Latin American Equities. During this time, Anthony Daniell was responsible for cash and derivative sales, trading and research. He was promoted to Managing Director in January 1999. During the period April 1986 to December 2001, as a result of a series of mergers and acquisitions Rowe and Pitman changed its name several times and ultimately became part of UBS Warburg. Anthony Daniell left UBS Warburg in December 2001.

In January 2002, he started at Eday Ltd, an FSA-registered private limited company which marketed absolute return funds. In 2003, Winton engaged Eday Ltd and Anthony Daniell to market its products. In October 2004, Anthony Daniell joined Winton Capital Management as Head of Global Marketing and Sales. He became a director in October 2006, and was appointed as Chief Executive Officer (“CEO”) in October 2010.

Anthony Daniell has been registered with the CFTC as an Associated Person of Winton Capital Management since April 2005 and listed as a Principal since October 2006. He became an Associate Member of NFA in April 2005.
 

Matthew Beddall, born in 1980, graduated from the University of Southampton with a first class honors degree in Mathematics and Computer Science in 2001. He was awarded an MSc in Applied Statistics from Birkbeck College University of London in 2003. Matthew Beddall initially joined Winton in 2000 as a summer intern, returning after graduation from university as a full time researcher in July 2001. Throughout his employment with Winton Capital Management, Matthew Beddall has been extensively involved in the  research process and has lead the development of much of the software that underlies the design and running of Winton Capital Management’s trading strategy. Matthew Beddall was appointed Chief Investment Officer (“CIO”) in 2008. His responsibilities are now principally focused on managing the investment process behind the company and the oversight of a large part of Winton’s research department. Matthew Beddall has been registered with the CFTC as an Associated Person since February 2009 and listed as a Principal of Winton Capital Management since January 2009. He became an Associate Member of NFA in February 2009.

Rajeev Patel, born in 1972, graduated from Trinity and All Saints College, Leeds, with a degree in Economics and Business Administration. Rajeev Patel joined Winton Capital Management in April 1997. Initially working as an execution trader and settlements analyst, over the last 12 years Rajeev Patel has become centrally involved in Winton Capital Management’s trading and operations functions. He has overseen the development and implementation of a number of automated accounting and reconciliation processes as the company has moved from external to proprietary systems. Rajeev Patel is currently responsible for the Operations department, covering operations IT, fund accounting and settlements; and was appointed Chief Operating Officer (“COO”) in October 2010. Rajeev Patel was originally registered with the SFA and was “grandfathered” into the new regime as an FSA Approved Person in December 2001. Rajeev Patel has been registered with the CFTC as an Associated Person and has been an Associate Member since May 1998 and listed as a Principal of Winton Capital Management since June 2009.

Andrew Bastow, born in 1973, has been Winton Capital Management’s General Counsel since October 2005 and became Director of Government Regulatory Affairs and a member of the board in October 2010. Andrew Bastow is a solicitor of England and Wales and is also admitted as a Barrister and Solicitor of the Supreme Court of Western Australia. Prior to joining Winton Capital Management, he was employed by the Treasury Solicitor’s Department of the Government of the United Kingdom from March 2005 to October 2005 and before that with the State Solicitor’s Office in Western Australia from February 2001 to January 2005, where he was engaged in a wide range of practice areas including public law, employment, regulation, prosecution and enforcement. He is a British Chevening Scholar and holds a First Class Master of Laws degree from the London School of Economics and Political Science which he received in September 2004. Andrew Bastow was elected to the General Council of the Alternative Investment Management Association in September 2010 and is a member of the Hedge Fund Lawyers Association. Andrew Bastow has been listed with NFA as a Principal of Winton Capital Management since November 2010.

The descriptions above are from the manager’s disclosure document.

THE RISK OF LOSS IN TRADING FUTURES, OPTIONS AND OFF-EXCHANGE FOREX CAN BE SUBSTANTIAL.  PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.  PLEASE READ THE CTA'S RISK DISCLOSURE DOCUMENT CAREFULLY BEFORE INVESTING MONEY.