CTAs enjoy solid gains during torrid month for markets

Data

CTA strategies posted positive returns during March as markets were roiled during the sustained economic turbulence, new data from Société Générale shows.

Each of SocGen’s CTA indices notched up gains last month, pushing their year-to-date performance into positive territory, while, in contrast, many equities markets suffered their worst quarter in recent history as fears of the Covid-19 outbreak gripped markets from February onwards.

The SocGen CTA Index – which tracks the daily performance of a select pool of the largest trend-following managers - closed the month in positive territory, at 0.09 per cent.  Meanwhile, the SG Trend Index added 1.82 per cent during the month. The index, which calculates the net daily gains of a pool of trend-following based hedge fund managers, is now up 2.29 per cent year-to-date.

Elsewhere, short-term CTAs are now the best performing CTA strategy for the year so far, gaining 3.99 per cent since the start of the year, having finished March up 0.72 per cent on average following positive January and February gains.

Pointing to last month’s “unprecedented” market moves following the impact of the Covid-19 outbreak, Tom Wrobel, director of capital consulting at Societe Generale Prime Services and Clearing said it “was reassuring to see CTAs weather the storm”, with all indices remaining positive.

“CTAs once again demonstrated their non-correlated performance, and historic ability to generate ‘crisis alpha’,” Wrobel noted.

Trend-following hedge funds gained ground by locking onto several moves, predominantly in commodities where energy markets’ downward momentum gathered pace. Similarly, there were also emerging trends in currencies which benefitted CTAs, while the stock market sell-off likely hurt those managers who did not exit their positions or switch direction, SocGen noted.

Elsewhere, anecdotal market observations suggests a considerable degree of dispersion across the managed futures sector.  Shorter-term strategies enjoyed strong gains, as did those funds which target market volatility as volatility surged in recent week.

On the flipside, CTAs that have diversified away from purely trend-following approaches – such as machine learning-based vehicles – reportedly underperformed during the crash. Similarly, the more fundamental quantitative macro strategies are understood to have been squeezed by the prevailing downward market sentiment.

Looking ahead, Wrobel believes the increasing interest among institutional investors in CTAs has been justified.

“With over half of the individual CTA program constituents of our indices posting positive performance in March, we will closely monitor both performance and growing demand for CTAs as 2020 continues,” he said.