Lyxor Epsilon Global strategy outflanks benchmarks amid CTA reversal

Financial data

The Lyxor Epsilon Global Trend Fund, Metori Capital’s long-running systematic managed futures strategy, remains well up in 2020, comfortably outperforming CTA benchmarks as trend-following hedge funds were caught out by reversals across across FX, commodities and equities in recent weeks.

Epsilon Global Trend has gained 7.7 per cent over the nine-month period since the start of January, despite sliding 0.63 per cent in September. Its volatility level remains under 8 per cent. By comparison, the SG Trend Index, which measures the net daily rate of return for a pool of trend following hedge funds, slumped more than 2.5 per cent last month, and overall has lost some 1.91 per cent on a year-to-date basis.

The strategy, whose statistical, price-based computer-driven model trades around 40 markets, added 0.3 per cent from fixed income positions last month. Positive performance in its longs in Italian bonds outstripped losses from shorts in Euribor and German bonds.

But the strategy’s equities portfolio suffered a 0.8 per cent slide, as FX positions slumped 0.4 per cent.

Its equities losses stemmed mainly from faltering long positions on the S&P 500 and Nasdaq, as US stocks suffered their first monthly fall since March’s crash, though the strategy registered small gains on Japanese equities.

In FX, as the dollar rose to outflank most major currencies in September, the strategy’s short emerging currency gains were ultimately outweighed by losses on short USD vs G10 (EUR and CHF) positions, and a long EUR against JPY bet.

In a note, Metori pointed to renewed concerns about the economic impact of the coronavirus crisis, along with weak inflation, and growing uncertainty over the US election as driving downward pressure on European bond yields.

“Covid-19, renewed economic turmoil and geopolitical uncertainty remained key drivers in September,” Metori observed.

“Investors focused on the potential for a broader stimulus package from Congress, while concerns about a second wave of coronavirus infections hampered Europe’s recovery and doubts over Brexit trade deal stepped to the fore.”