ANTIQUES SHOPS

* Computer-driven funds turn around after recent weak returns

* Small to mid-sized funds more nimble than big names

* Black boxes latched on strong downtrends in euro, oil, copper

By Eric Onstad

LONDON, June 15 (Reuters) - A clutch of computer-driven hedge funds have profited from steep market losses in May, outperforming other hedge funds in a welcome turnaround for the black box sector that has struggled recently amid volatile markets.

Many of the outperformers were small and mid-sized funds that were more nimble and able to switch direction easier than the big established ones, investors said.

Some well known names such as $29 billion Winton Capital and $21 billion AHL failed to exploit losses spurred by renewed troubles in the euro zone in May after also disappointing investors by missing out on a brief rally earlier in the year.

The so-called managed futures sector uses complex algorithms to latch on to market trends either up or down to churn out profits. They are also known as commodity trading advisers, CTAs, because they started off by trading commodities but have since expanded futures for any asset class.

They attracted a surge of funds in 2009 after hefty gains during the 2008 financial crisis, but since then performance has been uneven.

"Recently it's been a bit too choppy for the strategy, but May was perfect conditions for them, with clear trends on all the major asset classes they trade," said Gabriel Garcin, a portfolio manager at Europanel Research & Alternative Asset Management in Paris, which invests in European hedge funds and CTAs.

The CTA index, compiled by research firm BarclayHedge, gained 2.6 percent in May, while its hedge fund index fell 2.8 percent.

Financial computer programmes do best when markets move in strong trends, and most have struggled to profit amid choppy markets over the past year.

In May, a downtrend was clear as Brent crude tumbled 14.7 percent, copper by 11.6 percent, the euro 6.7 percent and the S&P index by 6.3 percent.

FUZZY LOGIC

A top performer was Chicago-based Clarke Capital Management, whose $49 million Millennium Fund soared by 46.5 percent and its $20 million Jupiter Fund by 39.7 percent in May.

Former computer programmer Michael Clarke, a veteran in the CTA sector since founding his firm in 1993, uses a "fuzzy logic" trend filter to confirm trading signals.

The Millennium Fund, which trades 42 markets and uses 22 computer models, has a volatile history, with a 95.5 percent gain in 2008 and a 48.3 percent loss the following year.

The fund's biggest winning positions in May were from shorting the euro and going long on bunds, with contributions from shorting gasoil, crude oil, cotton and coffee, Vice President of Operations Jim Andersen told Reuters.

Prior to May, several of the fund's computer models gave similar signals on the euro.

"When the price movement went our way in May, a majority of our trading models' positions were able to benefit from those moves, amplifying the gains," Andersen said.

Quantitative Investment Management's (QIM) $288 million Global Fund 3x jumped by 23.7 percent in May, according to performance information seen by Reuters.

QIM, headed by former Societe Generale trader Jaffray Woodriff, said in an investor newsletter that its bigger Global Program fund with $4.04 billion in assets, gained 7.17 percent last month by shorting the euro, the S&P index and crude oil.

"As the program is now at new highs, we would like to thank all of our investors who have weathered the storm with us," said Virginia-based QIM, whose Global Fund lost 4.5 percent in January and 1.4 percent in February.

Chicago-based Hawksbill Capital Management, run by former professional blackjack player Tom Shanks, saw its Global Diversified Program jump 16.13 percent in May. The $111 million fund made the bulk of its money on energy, currencies and European financials, it said in an investor update.

In the UK, Cantab Capital gained 7.32 percent in May mostly from positions on foreign exchange and interest rates. The Cambridge-based firm is run by former Goldman Sachs executive Ewan Kirk, who once headed the bank's quantitative unit.

BIGGER FUNDS LESS AGILE

While the overall CTA sector showed positive returns in May, many major funds were still struggling after they failed to profit from the market rebound early in the year.

Winton's main Futures Fund fell another 0.17 percent in May, bringing the yearly return to a 0.93 percent loss, and Man Group's AHL fund is down 0.7 percent through June 11.

"The largest guys ... seem to have got caught. Probably they are too big and too heavy on the markets, so they are less flexible and it takes more time to reverse from long to short," said an industry source who declined to be named.

The $14 billion BlueTrend Fund, part of manager BlueCrest and headed by Brazilian-born Leda Braga, has made a modest recovery and is up 1.75 percent this year through May after falling 2.5 percent in the first quarter.

Smaller CTAs are attracting more attention from investors who have been disappointed with returns from some of the big funds that dominate the industry.

Most trend-following CTAs made their money in the last few days of the month, said Jan Auspurg, managing director at AQ Advisors, which manages the 180 million euro AC Spectrum Fund.

"Most of them were positioned correctly, but the size of the positions was generally not that large as those trends were still developing," said Zurich-based Auspurg.

"Most systems made money towards the end of May as most markets had trended for three weeks, and then the market reaction at the end of May was even more pronounced," he said.

Spectrum, a UCITS fund, gained 6.0 percent in May, but losses earlier in the year meant the fund was down 2.0 percent so far this year. (Additional reporting by Claire Milhench and Tommy Wilkes, editing by Jane Baird)

June 15 -

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Summary analysis -- PT Medco Energi Internasional Tbk. ------------ 15-Jun-2012

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CREDIT RATING: B/Stable/-- Country: Indonesia

Primary SIC: Oil and gas

exploration

services

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Credit Rating History:

Local currency Foreign currency

07-May-2009 B/-- B/--

03-Feb-2002 B+/-- B+/--

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Rationale

The rating on PT Medco Energi Internasional Tbk. (Medco) reflects the company's exposure to volatile hydrocarbon prices, its large investment requirements, and its aggressive financial policy that relies on debt to fund growth. Medco's favorable location and cost structure, good growth potential in its development and exploration blocks, and its partial insulation from currency instability and sovereign-debt risk temper these weaknesses.

Medco's liquidity and operating cash flow are exposed to volatility in hydrocarbon prices. Nevertheless, liquidity and operating cash flow have benefited from an increase in average realized oil prices to $113.7 per barrel in 2011, from $81.4 per barrel a year earlier. Overall production remained broadly stable at 67.6 thousand barrels of oil equivalent per day. As a result, the company's debt-to-EBITDA ratio improved to 3.6x in 2011, from 4.1x in 2010, despite a 32% increase in debt.

Asset sales have also improved liquidity in the past 12 months. Medco sold a 20% stake in the Senoro-Toili production sharing contract to Mitsubishi Corp. (A+/Stable/A-1) for $260 million in early 2011. The company also sold Medco Tunisia Anaguid Ltd. for $58 million and a 51% stake in PT Medco Power Indonesia for $112 million in December 2011. These divestments have lowered Medco's future investment commitments under these projects.

We expect Medco's financial risk profile to remain "aggressive" in the next 12-24 months. This is due to the company's substantial estimated total capital expenditure of $695 million in 2012 and 2013. The spending relates to Medco's major development projects, namely the Senoro-Toili gas/liquefied natural gas development and the Block A gas reserves project in Indonesia. These projects will be predominantly debt-funded and would not generate any cash flows until 2014.

Progress at Medco's major projects is critical to prevent any deterioration in the company's "weak" business risk profile from the continuing decline in its producing asset: the Rimau block. In our view, the growth potential in Medco's major projects is solid. However, these projects expose the company to some execution and operational risks. Nevertheless, these projects are currently proceeding as planned. We continue not to factor in any benefit from Medco's Libya operations, given the contingent nature of the project and political instability in the region.

Liquidity

Medco has "adequate" liquidity, as our criteria define the term. We expect the company's sources of liquidity, including cash and available credit facilities, to exceed its uses of liquidity by at least 1.4x in the next 12 months.

Our liquidity assessment incorporates the following factors and assumptions:

-- As of Dec. 31, 2011, Medco has cash and cash equivalents of $703.9 million and short-term investments of $247.3 million, compared with $539.2 million of short-term debt due (including accrued interest).

-- As of March 31, 2012, Medco has access to unused committed credit facilities of $230 million. Some of these facilities are renewable every 12 months, which is in line with the typical banking practice in Indonesia.

-- Liquidity sources over the next 12 months include our expectation of FFO of about $190 million, short-term credit facilities, and cash and current investments.

-- Liquidity needs over the next 12 months include our expectation of capital expenditure of about $271 million and dividends and debt repayments of about $514 million.

-- We anticipate that the company's liquidity sources will exceed its needs even if EBITDA declines by 15%.

There are no rating triggers in Medco's current loan documents, but the company must comply with financial covenants on interest coverage, leverage, and liquidity. We believe Medco has been operating within these covenants.

Outlook

The stable outlook reflects our expectation that Medco's production and development projects will continue to progress as planned, and that oil prices will remain above US$90 a barrel and gas prices at about US$4.0 per million British thermal unit. Under this scenario, we expect the company's debt-to-EBITDA ratio to remain about 4.0x in 2012.

We may lower the rating if Medco's liquidity or financial risk profile weakens due to: (1) delays at the company's major projects that result in higher-than-expected capital expenditure or a delay in cash flow contributions; (2) lower-than-expected production in existing fields; or (3) a substantial fall in oil prices. A debt-to-EBITDA ratio rising to more than 4.5x on a sustained basis would indicate such a weakening.

We could raise the rating if the following occurs:

-- Higher-than-expected oil prices result in improved credit ratios and liquidity for Medco. A debt-to-EBITDA ratio of about 3.5x on a sustained basis would indicate such an improvement; and

-- The company's major development projects progress as planned. This includes a commercialization of the Block A gas reserves development by the second half of 2012 and timely progress of the Senoro-Toili block toward production in 2014.

Related Criteria And Research

-- Standard & Poor's Raises Its Oil Price Assumptions; Natural Gas Price Assumptions Unchanged, March 22, 2012

-- Key Credit Factors: Global Criteria For Rating The Oil And Gas Exploration And Production Industry, Jan. 20, 2012

-- Criteria Methodology: Business Risk/Financial Risk Matrix Expanded, May 27, 2009

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008