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Managed futures suffer in July on short-lived market trends

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Managed futures struggled in July, ending the month in negative territory as market trends were too short-lived for managers to identify and profit from them, according to a report by L

Managed futures struggled in July, ending the month in negative territory as market trends were too short-lived for managers to identify and profit from them, according to a report by Lipper Tass.

The hedge fund strategy posted a negative 0.18 per cent return on average for the month, a minus 2.35 per cent since the beginning of the year, and a positive 2.83 per cent for the rolling 12-month window in US-dollar terms.

The degree of dispersion among individual fund returns dropped from the previous month’s reading. A 43.36-percentage-point monthly performance difference in July divided the top and bottom performers of the actively reporting managers tracked by Lipper.

July reversed June’s readings. Managers with assets in excess of USD45m returned a better average performance at 0.35 per cent month on month-53 basis points above the average reading for the strategy. Large managed futures managers returned a negative 2.40 per cent for the year to date as of the end of July and a positive 5.82 per cent for the rolling 12-month window.

Stock markets gained across the board in July, with the MSCI World TR Index finishing up 8.50 per cent. The US stock market climbed 7.56 per cent as positive quarterly corporate earnings reports and better-than-expected home prices and new home sales buoyed investor confidence about an imminent economic recovery.

All ten sectors covered by the S&P 500 Index posted positive returns for July. The biggest gain was recorded by the materials sector-posting a double-digit return of 13.31 per cent. Despite analysts’ continuing to cut forward 12-month earnings estimates in the industrials and information technology sectors, those two sectors along with consumer discretionary, posting 9.24 per cent, 9.14 per cent, and 9.37 per cent monthly returns, were the runners-up on the sector performance league table for July. For the year to date information technology (up 35.42 per cent) was the best performing sector, outperforming materials-the second-best performer-by 8.2 percentage points.

Developed markets rallied in July; the S&P Global BMI Developed Index closed at 8.61 per cent, with 12 of the 24 developed countries included in the index posting double-digit returns. All emerging markets-except Morocco which declined 5.23 per cent-registered gains during the month, with Poland and Indonesia ranking at the top of the performance league table. BRIC members performed relatively well for the month, led by China posting a double-digit return of 11.27 per cent.

The US dollar declined 2.26 per cent month on month in July, according to the ICE Futures US Dollar Index (a trade-weighted geometric average of six currencies) as rising equity markets sparked unwinding of cautious trading positions.

Emerging-market currencies-with the exception of the Russian ruble and South African rand-continued to fly, driven by risk appetite and commodities demand. Russia’s GDP plunged 10 per cent in first half 2009, and it is expected to contract further in the second half of the year on collapsing industrial production, rising unemployment, and ongoing capital flight, according to the World Bank. Three Eastern Europe currencies rallied in July; the Polish zloty, Czech koruna, and Hungarian forint posted 8.33 per cent, 3.30 per cent, and 3.89 per cent appreciation, respectively.

Meanwhile, the Asian stock market rally lifted most Asian currencies against the greenback; the Korean won and Indonesian rupiah appreciated 3.95 per cent and 2.75 per cent, respectively.

The Reuters/Jefferies CRB Index-a global commodities benchmark that tracks 19 mostly US-traded futures markets-advanced 3.00 per cent month on month, with base metals (nickel, copper, and aluminium drove the rally) and soft commodities sustaining the performance of the index. A rally in raw material prices was driven by the weakness in the US dollar and the encouraging US economy in the second quarter.

Copper rallied at the end of the month and was the best performer in the commodities segment for the year to date as Chinese imports, boosted by stockpiling and a CNY4trn (USD585bn) stimulus package, soared 12.4 per cent from a month earlier and more than doubled in the first half from a year earlier. News of supply constraints on shutdowns at two of Chile’s biggest mines caused further strong upward copper price movement.

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