Digital Assets Report

Newsletter

Like this article?

Sign up to our free newsletter

Managed futures post big loss in May after heavy sell-offs

Related Topics

Managed futures had a hideous month in May as markets sold off across the board amid growing fears about Europe’s financial stability, a report by Lipper Tass says.

Long-term trend followers generally posted losses as a number of market trends reversed sharply and as market correlations increased during a period of decreasing global market returns.

Long exposures to equities and commodities dragged down manager performance. Large speculators progressively added in May net short positions in the S&P 500 and Nasdaq-100 delta-adjusted options and futures combined to the tune of more than USD2.70bn and USD99.39m notional value, respectively.

Large speculative short trades in the euro and sterling contributed to performance at the end of the month. The Lipper Managed Futures/CTAs index fell 3.82 per cent in May and is down 4.05 per cent year on year.

The degree of dispersion among individual fund returns increased from the previous month’s reading. A 61.08-percentage-point monthly performance difference in May divided the top and bottom performers of the actively reporting managers tracked by Lipper.

May reversed April’s readings. Managers with assets in excess of USD45m returned a better average performance at minus 2.23 per cent month on month—157 basis points above the average reading for the strategy. Large managed futures managers returned a negative 1.74 per cent on average for the 12-month rolling period at the end of May.

May saw global equities facing the biggest correction of the long bull market this year. The MSCI World TR Index registered minus 9.48 per cent for May, while the Stoxx Europe TMI TR dropped 12.38 per cent. Concerns over the European debt problem spilled over into the U.S. market; the S&P 500 TR Index declined 7.99 per cent for the month.

All ten sectors included in the index finished the month in the red, dragged down the most by energy (-11.81 per cent) and industrials (-9.83 per cent).

Volatility as measured by the CBOE VIX spiked to a multi-month high (increasing 45.44 per cent—from 22.05 on April 30 to 32.07 at the end of May). A VIX reading higher than 30 indicates that investors are becoming worried.

All investing styles registered negative performance, with mid- and small-cap stocks (-7.59 per cent) outpacing large-cap stocks (-7.93 per cent) and growth (-7.63 per cent) outperforming value (-8.22 per cent) stocks at the end of the month.

Developed markets (-10.12 per cent) posted disappointing returns, with all regions ending the month in the red. Unsurprisingly, all 16 stock markets in the developed European countries edged lower, with Greece (-25.82 per cent) and Ireland (-9.84 per cent) dropping the most. The increasing uncertainty with regard to Greece’s fiscal deficit spilled over to emerging markets (-8.75 per cent). All the BRIC countries registered negative returns for the month—Brazil (-10.89 per cent), Russia (-12.32 per cent), India (-8.16 per cent), and China (-6.49 per cent).

In the FX market short euro/long US dollar and short sterling/long US dollar continued to be the most profitable trades for most managers. Nonetheless, neither trade was sufficient to offset losses across portfolios. The US dollar appreciated 7.45 per cent against the euro for May as Europe’s ongoing debt concerns prompted a flight to the safety of the dollar. Furthermore, the positive economic data in the US supported the rising dollar. Consumer confidence for May rose more than projected, with the index rising to 63.3 at the end of the month. Meanwhile, the unemployment rate edged down to 9.7 per cent in May from 9.9 per cent in the previous month, evidencing that the economy was getting stronger.

Commodities edged significantly lower for May, with the Reuters/Jefferies CRB Index dropping 8.25 per cent month on month. Gold (+2.77 per cent) and natural gas (+8.14 per cent) were the only two commodities posting gains for May. Mounting concerns over Europe’s debt crisis pushed the price of gold to a record high as investors flocked to gold as a safe-haven asset.

Speculators taking long positions in crude oil (-18.44 per cent) and short positions in natural gas (+8.14 per cent) saw significant losses for May; crude oil was the second biggest drag on the index after nickel, and natural gas was the best performing commodity for the month.

Like this article? Sign up to our free newsletter

Most Popular

Further Reading

Featured