Market volatility erodes CTAs’ recent gains

Market volatility

Trend-following hedge fund strategies’ strong start to 2020 was eroded during last month’s market volatility, leaving CTAs down for February and flat year-to-date.

But managed futures’ funds resilience – they ultimately stemmed losses amid last week’s dramatic sell-off through long bets in bonds and the US dollar – demonstrates their continued ability to capitalise on opportunities, said Tom Wrobel, director of capital consulting at Société Générale Prime Services and Clearing in London.

Société Générale’s SG CTA Index – which tracks the daily performance of a select pool of the largest trend-following managers – was up 4 per cent at February’s midway point, before last week’s market volatility driven by coronavirus concerns left it down 1.50 per cent for the month. The index is now flat year-to-date, at -0.68 per cent.

Meanwhile, the SG Trend Index – which got off to an equally strong start, advancing 5 per cent in early February - rounded off the month down 0.42 per cent. It stands at 0.46 per cent since the start of January.

More positively, the SG Short Term Traders Index – which measures the performance of CTAs and global macro funds running short-term strategies – benefitted from the increased market volatility amid last week’s dramatic sell-off. It remains up more than 3.5 per cent in 2020, adding 0.90 per cent in February.

Managed futures funds, which enjoyed a strong 2019, continued their positive performance into the new year, locking onto the sustained upwards trends in equity markets, as well as movements in currencies and bonds. CTAs later suffered losses in risk assets such as equities in the second half of February as markets corrected - but these were largely offset by long positions in bonds and US dollar, SocGen noted.

“Whilst the gains made in the first two months of the year have been impacted by market reversals, CTAs continued to demonstrate their diversified portfolio construction, and many were able to take advantage of volatile markets,” Wrobel said on Thursday.

“This demonstrates the resilience of CTA strategies amidst market volatility, and the opportunity for many strategies to make gains.”