The idea of using social media sentiment to determine trades on the stock market sounded somewhere between ‘brave’ and ‘crazy’ when we first heard about Derwent Capital Markets’ Absolute Return Fund back in late 2010. It seems potential investors took something closer to the latter viewpoint, however. The firm has told the Financial Times [paywalled link] that the fund was “quietly liquidated” just a month after its launch last year.
That explains Derwent’s plans, reported by us last week, to repurpose the technology it developed to operate the fund as an online platform that individual traders can use to inform their actions.
Derwent’s system is based on academic research that found Twitter could be successfully used as an early indicator of changing sentiment around particular stocks and commodities. This allows Twitter data to be used to predict forthcoming price fluctuations in the market.
It seems the fund did reasonably well during its short life. London-based Derwent’s CEO and founder, Paul Hawtin told the FT that in the one month that the fund was open, it returned 1.86% in its sterling shares, ahead of the market and the average hedge fund. He didn’t go into much detail about why the fund was closed other than to say that hedge funds are a difficult product to sell.
Hawtin hasn’t responded to our request for more details today, but it appears that there simply isn’t much market appetite for investments powered by social media sentiment. The FT notes that other firms, including MarketPsy Capital, have also aborted plans for social media-powered hedge funds.
It seems that the market simply isn’t ready to put its faith in the wisdom of digital crowds just yet.