Why short-term CTAs remain up for the year, as other trend-following hedge funds take a tumble

Financial data

Short-term trend-following hedge fund strategies stayed in positive territory in the first six months of 2020, despite June proving to be another tough month in which CTAs’ performance continued to slide as markets reverted and lacked direction.

Société Générale’s Short-Term Traders Index - which monitors the daily performance of a portfolio of CTAs and global macro managers with holding periods of up to 10 days – advanced 2.98 per cent in the period between 1st January and 30th June.

Though the index dipped slightly (-0.68 per cent) last month, close to half its constituents posted positive performance in June, Société Générale said on Monday (6th July).

On the flip-side, however, SocGen’s main CTA index fell 1.44 per cent in June in what the bank described as “a difficult month” for many CTA strategies.

The index - a daily performance barometer of a select pool of large managed futures strategies - has now shed 2.69 per cent since the start of the year, according to SocGen data.

As risk asset recovery slowed amid price consolidation, short-term strategies were able to continue to find profit in the movements of markets – but other CTAs found it tricky to lock on to clear discernible investment trends, the bank noted.

As such, the SG Trend Index – a measure of the net daily gains of a pool of trend-following based hedge fund managers – lost 1.73 per cent in June, and remains slightly negative at -0.85 per cent in the six-month period since the start of January.

Tom Wrobel, director of alternative investment consulting at Société Générale Prime Services and Clearing in London, noted that despite the losses on average in June, individual CTA performance ultimately hinged on the exact time-frame and exposures maintained.

As oil prices continued to rally following their historic collapse earlier in the year, trend-following hedge funds are now likely adjusting to the new upwards price trend. In contrast, sustained downward momentum in natural gas, and gathering upward trends in gold and silver, offer “good trading opportunities” for this corner of the hedge fund industry.

“CTAs typically trade multiple asset classes, maximising the sources for gains and spreading risk,” Wrobel observed. “Despite risk asset momentum slowing in June, gold approached its all-time high, and CTAs were likely well positioned to benefit from this and various other markets.”

He said: “As CTAs adapt to the new market environment, one thing is clear: CTA performance in 2020 has caught the attention of institutional investors once again.”