After a dismal performance and significant outflows in 2018, trend following strategies are on the mend, according to the latest Weekly brief from Lyxor’s Cross Asset Research team.
Lyxor writes: “A month ago, we signalled the strategy was experiencing green shoots of recovery (link); so far this month, it has been the best performing one. Based on a sample of 28 strategies, we note that: i) all of them are in positive territory month-to-date (as of March 12th), ii) the best performer is up +3.4 per cent and, iii) the worst performer is up +0.2 per cent. In a nutshell a broad-based CTA recovery is currently happening.
“The positioning of CTAs has been significantly reshuffled recently. Equity positioning has turned long in net terms early February and has particularly increased on US equities, while the long-fixed income positioning has stabilised at an elevated level. Concurrently, the long US. Dollar positioning is on the rise, in particular vs. the Euro and the Japanese Yen, and commodity positioning continues to be short, due to selling positions on agricultural commodities.
“Our views on the strategy stay neutral, which means that we suggest a 10-15 per cent allocation to CTAs in a hedge fund portfolio.1 Despite the poor performance of CTAs in 2018, investors should keep in mind that over the past 20 years CTAs outperformed equities with a low correlation to global stock indices.
“As an aside, we are now using new benchmarks to measure hedge fund performance. Due to the narrowness and lack of transparency of publicly available liquid indices, our hedge fund analyst team has developed peer groups composed of 247 strategies with total assets under management close to USD250 billion. The criteria of inclusion are fourfold: i) we only include UCITS strategies; ii) every strategy is properly assessed and categorised based on fund’s prospectus; iii) we only include strategies with assets under management of at least USD 50 million; and iv) we only include strategies with at least a one-year track record. The average performance of such peer groups, globally and by strategy, will constitute the basis of our comments on hedge fund performance from now on.”
