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Weekly Brief: CTAs underperform in April as USD eases

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The month of April has marked the transition toward a new market regime. The first quarter has been driven by expectations of monetary policy tightening in the US and easing measures in the rest of the world. In this context, Hedge Funds fared well, with numerous opportunities in all asset classes. 


Philippe Ferreira

Head of Research – Managed Account Platform

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But in April, markets have absorbed the “weaker than expected” developments in the US, and continued to reprice monetary policy accordingly. Implications loom large on several asset classes: fixed income, FX and commodity markets experienced large trend reversals.

While the first part of the year has seen tremendous performance from CTAs, most of the funds managed to post positive return and all strategies were up during the period. In April, it has been more contrasted with less directionality. The Lyxor Hedge Fund Index returned 0.3 per cent in April, compared to 3.2 per cent during Q1.

In this context, our call for a preference of short term CTAs over long term ones had proved to be right as they managed to adjust rapidly their positioning to trend reversals. Another right call has to be found on the Asian managers’ side where Chinese market rocketed on the back of new easing measures (Shanghai Shenzhen 300 Index +17 per cent in April, +37 per cent YTD). Last but not least event driven managers generated also gains supported by a strong activity in the M&A space.

On the negative side the performance of Credit strategies lagged in April. In addition to negative developments in some special situations names, volatility surrounding Greece and dislocations in the High Yield space have hurt some managers.

A majority of managers achieved to end the month slightly positive, but the new market regime has created more dispersion between managers. In April, more than 40 per cent of the funds were negative compared to only 15 per cent during Q1. The transition from highly macro-driven markets to a more fragmented environment highlights the importance of fund selection when investing in Hedge Funds.

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