Quoting from this WSJ article about the famous stock market crash of 1929 and its aftermath,
“… he (statistician Karl G. Karsten) made discoveries that anticipated many of the ideas behind hedge funds and so-called smart beta, or mechanical strategies to earn excess returns, that are so popular today. By 1928, Karsten was investing based on his theories. He wasted two years trying to combine subjective judgment with statistical analysis, but on Dec. 17, 1930, he launched a small fund run with real money and nothing but math. Under what Karsten called “the hedge principle,” his “Demonstration Fund” appears to have bought the three biggest stocks in the industry sector whose share prices had been rising the most; at the same time, it sold short, or bet against, the rest of the stock market. The fund rotated from one sector to another based on whichever had the best price momentum. By June 3, 1931, Karsten wrote, the Demonstration Fund was up 78%, net of trading costs. The Dow fell 21% over the same span. Karsten warned, presciently, that techniques like his couldn’t work if too many people tried them. Such an investing approach, he wrote, “can be used only by a limited amount of capital when a very much larger amount of capital is ignorant of this system, and willing to be exploited.””
Postscript: The Demonstration Fund seems to have dwindled by 1937, and there doesn’t appear to be any record of a fund after 1942.