Trend-following hedge funds are fighting back following their worst month of 2020

Trend following

Trend-following hedge fund strategies have launched a partial fightback in recent weeks, advancing into positive territory so far in October having suffered their worst month of the year during September’s market reversal.

Société Générale’s main SG CTA Index, a widely-used industry benchmark tracking the daily performance of a group of the biggest managed futures funds reporting their returns, has gained 1.37 per cent in the first two weeks of this month.

The rise partially reverses some of September’s losses, when the index tumbled 2.34 per cent as trend followers were caught by a rapid stock market downturn and US dollar weakness.

Overall, though, SocGen’s CTA Index remains down more than 2 per cent so far this year.

Similarly, the SG Trend Index – a measure of the net daily gains of a 10-strong pool of the biggest trend-following based hedge fund managers – is up almost 2 per cent so far this month, a partial rebound from September’s 3.30 per cent slide.

The index is now essentially flat for the year, at -0.11 per cent, its pendulum-swing performance reflecting the ebb and flow of current markets, as the US presidential election, Brexit negotiations and a resurgence in Covid-19 cases in many developed market countries loom over equities, commodities, currencies and fixed income trends.

Elsewhere, the SG Short Term Traders Index has given back some 0.44 per cent in October so far.  But the index – a daily performance barometer of ten of the largest short-term, diversified CTAs with holding periods of under 10 days – is still up 1.76 per cent year-to-date, with short-term CTAs losing just 0.76 per cent in September.

Following a mixed first half of 2020, CTAs had gathered momentum amid the post-Covid crash stock market rally over the summer. They notched up their biggest gains of the year in July, before stumbling in September, with the prospect of a new market regime characterised by uncertainty and volatility disrupting trend momentum.