Skeptics were easy to find in the bull market, but these funds are now working as advertised. 

If there was ever a time when a countertrend strategy was needed, it would be now. By countertrend, of course, I mean a tactic that gains while the stock market swoons. There are bear market funds aplenty, but those aren’t suitable as permanent portfolio allocations. There are bond funds of various stripes, too, which boast of low correlations to equities, but those are typically low volatility products whose gains are often swamped by equity losses.

Enter the 361 Capital Global Counter-Trend Fund (OTC: AGFQX), a managed futures strategy of a different sort. Employing a suite of systematic trading models, AGFQX takes long and short positions in equity index futures contracts—and equity futures only—in U.S., European and Asian markets. At times, the fund also goes to cash.

Over the past 12 months, the $18.9 million fund gained more than 5 percent while the S&P 500 lost nearly 9 percent. Countertrend indeed. It didn’t score its gains by simply shorting equity futures; that would be trend following, just in an opposite direction. 

No, AGFQX thrives where there’s short-term up-and-down movement in its target equity indices. The fund aims to sell overbought contracts and buy futures at oversold levels to harvest market “noise,” or the frequency of directional changes. The greater the number of price swings, the more opportunities to buy on down days and sell on up ones. The fund’s managers, expecting that the size of trading losses and gains will be roughly equal over time, rely upon a high “hit ratio” (percentage of winning trades) to garner profits.

The fund runs into trouble when its target markets trend violently in one direction. That’s what happened late last summer when a market drop sent the fund skidding into a sharp drawdown (see Chart 1). The fund subsequently recovered, ultimately reaching new highs as the broad stock market found fresh lows.