Société Générale’s CTA indices advanced between 2.5 and 3.5 per cent in the first three weeks of January, as managed futures strategies locked on to early-year trends in equity markets, currencies, and commodities.
Société Générale’s CTA indices advanced between 2.5 and 3.5 per cent in the first three weeks of January, as managed futures strategies locked on to early-year trends in equity markets, currencies, and commodities.
The solid returns come on the back of a strong 12 months for trend followers, who enjoyed their best annual performance since the banner year of 2014. The SG CTA Index – which tracks the daily performance of a select pool of the largest trend-following managers – rose 6.26 per cent in 2019. The SG Trend Index made 9.23 per cent for the year, while the SG Short Term Traders Index – which measures the performance of CTAs and global macro funds running short-term strategies – climbed 3.67 per cent.
Last year’s returns stemmed from gains spanning a variety of sectors, said Tom Wrobel, director of alternative investments consulting at Société Générale Prime Services in London.
Wrobel told Hedgeweek: “It was really the big bond moves that were generating gains, especially in trend following strategies. But it wasn’t just one sector. Bonds accounted for about three-quarters of performance, but they were also backed up by gains in equity indices, and in some commodities later in the year too as well as in selected currency markets.”
Not all trend followers made money last year, as dispersion in returns once again underscored performance metrics in the sector. Wrobel noted that disparity in gains and losses was particularly pronounced within short-term CTAs, with some strategies enjoying double-digits returns, as others badly underperformed.
“The groups who typically outperformed were the longer-term strategies, especially those who had slightly different approaches to how they manage risk,” he noted. “If you look at what happened to bond markets in 2019, there were big upward trends being captured. But in September, there was more volatility and something of a market reversal.”
How a particular strategy managed to stem losses often hinged on how active a manager was. “But again, if you cut risk too quickly, you often may not capture the upside,” he added.
Looking ahead, allocators continue to weigh up their approach to their hedge fund investments, as recent eVestment data revealed the sector suffered USD97.9 billion of investor outflows globally during 2019 – even though total industry assets under management remain more than USD3 trillion.
“Allocators are thinking a lot about how to position themselves. They have been paying fees for hedge funds but in many instances not getting the returns compared to the continued equity bull market,” Wrobel explained.
But demand for diversifying strategies persists.
“The sophisticated institutional allocators are very much actively looking at hedge funds and want to build diversified portfolios of non-correlated strategies – whether its CTAs, market neutral strategies, relative value, or macro.”
