CTA hedge funds retreat further following recent May losses

Financial data

Managed futures strategies slipped deeper into the red over the past week, having already started to give back many of their early strong 2020 gains last month – but short-term trend followers appear to have weathered the recent reversal, according to Société Générale data.

Société Générale’s main SG CTA index has lost 2.52 per cent so far in June, having earlier dropped almost 1 per cent in May. The index, which tracks the daily performance of a select pool of large managed futures strategies, has now fallen 3.76 per cent year-to-date.

Meanwhile, the SG Trend Index, which measures the net daily gains of a pool of trend-following based hedge fund managers, dropped 1.52 per cent last month, and has since suffered a further 3.61 per cent slide since the start of June. Since the start of the 2020, the index has lost 2.74 per cent overall.

The recent stock market rally has caught out certain trend-following funds which had locked onto the downward trajectory in equities, while CTAs have also suffered from the upward trends in currencies last month as the US dollar weakened.  At the same time, the recent recovery in oil prices upended earlier returns fuelled by bearish commodity positions.

The negative returns mark a sharp reversal for the CTAs sector, which had comfortably outperformed most other hedge fund strategies during Q1, as the coronavirus pandemic sent markets southwards.

More positively, though, short-term trend-following hedge funds have weathered the recent reversal, and remain up almost 3 per cent since the start of the year, SG’s data shows.

The SG Short Term Traders Index – which monitors the daily performance of a portfolio of CTAs and global macro managers trading a diversified range of strategies with a less than 10-day average holding period – remains positive for the year despite sliding 0.68 per cent so far in June, and -0.23 per cent in May.

Commenting on May’s performance, Tom Wrobel, director of alternative investment consulting at Société Générale Prime Services and Clearing, observed how CTAs fell in May as global markets recovered losses. But he stressed that CTAs remain firmly on the radar of institutional investors.

“Shorter-term strategies continue to lead performance, and we observe performance dispersion across all CTA strategies, with positive returns from a handful of managers who were able to capture recent price moves and rebounds,” Wrobel said.

“Conditions were more challenging for trend-followers in May as markets reverted from their recent down-trends, and we will closely monitor the emergence of new trends”.