Although commodity trading advisers have been affected by a lack of trends in world markets, the outlook is potentially more positive, especially for managers following a systematic app
Although commodity trading advisers have been affected by a lack of trends in world markets, the outlook is potentially more positive, especially for managers following a systematic approach using investment models, according to Francois Bonnin, chief executive of John Locke Investments.
In 2008, the average CTA showed positive returns of around 13 per cent, while the MSCI World equity index lost 42 per cent over the same period.
Bonnin (pictured) says 2009 has been more difficult for CTAs because of the lack of clear trends in markets. However, there is evidence that new, interesting trends are set to appear. For example, uncertainties over the very high levels of debt in some countries and questions over whether investors will continue to finance these should create opportunities. Similarly, there is still much uncertainty over the impact of quantitative easing and whether economies are heading for inflation or deflation.
‘When we think of a trend, it is of a movement in a market that is outside normal performance. It is the uncertainty that exists before trends develop that means interesting investment opportunities can arise. Our investment models have been developed to identify and benefit from such moves on both a short and long term basis. A typical CTA investor should have an investment time horizon of at least three years. This permits them to access and benefit from both shorter term and longer term investment trends,’ says Bonnin.
He adds that as risk appetite returns to world markets, CTAs with liquidity and returns uncorrelated to stocks are an ideal vehicle for investors who want the potential for positive returns without over exposure to volatile stock markets.
Meanwhile, Denis Beaudoin, chief executive of Finaltis, believes the CTA strategy has given back enough and that the prospects for positive returns look attractive.
‘It is true that CTA performance can be volatile and returns cyclical. Investing in CTAs after a long run-up has proved to be inefficient and investing after a drawdown has been profitable.
‘However CTAs and multi-CTA programs have evolved. Considerable progress has been made in adding diversification across assets and models, as well as risk controls so that performances are now less cyclical than in previous cycles and expected drawdowns are significantly reduced. The vast majority of CTA models have only shown modest drawdowns in 2009 and are ready to jump on the next trends, whatever direction those trends take. So longs as markets stay trending, there will be good opportunities for CTAs for the remainder of 2009 and into 2010.’
