Dispersion reigns among CTAs as October’s stock market reversal wipes out initial gains

Money squeeze

CTAs and managed futures hedge funds gave back their early-month gains during October’s market reversal, but they managed to stay generally flat for the month as equities tumbled to their second consecutive monthly loss.

New data from Société Générale suggests the reversal in equity markets was “one of the hardest movements for CTAs to navigate” last month, the French bank said on Friday morning.

But SG’s trend indicator suggests gains across the bond sector and currencies - particularly rising trends in European bonds, and currencies such as Mexican peso and JPY versus USD – helped stem losses elsewhere.

Commodity markets ultimately proved a “mixed bag”, with trends confined to smaller specific sectors while energy markets saw a “pull back” from recent upwards momentum.

As a result, the performance of Société Générale’s benchmark CTA indices were characterised by considerable return dispersion across the broader trend-following and managed futures spectrum.

Trend-following hedge funds notched up solid gains, with the SocGen Trend Index climbing by 0.58 per cent in October.

Year-to-date, the index – an equally-weighted performance measure of the largest 10 trend-following based CTAs – remains down around 1.47 per cent.

Elsewhere, though, SocGen’s main CTA Index, which provides a daily snapshot of a select pool of 20 of the largest managed futures strategies – was marginally negative at -0.12 per cent in October. Since the start of the year, the benchmark has lost 3.47 per cent.

Meanwhile, shorter-term CTA funds – as measured by Société Générale’s Short-Term Traders Index – continued to experience mixed performances.

The benchmark, which shows the daily returns for CTAs and global macro managers with 10-day trading windows, finished the month down slightly, at -0.36 per cent. Despite that slide, short-term strategies remain up in 2020, netting 1.84 per cent over the 10-month period.

SocGen said on Friday that returns for individual CTA programmes returns were roughly split between positive and negative performance. This was mirrored among other CTA styles, with considerable performance dispersion among trend-following and non-trend strategies.

“It was a month that split CTA performance, with initial gains eroded in the latter part of October, but with many still delivering positive performance and which highlights the variety of CTA strategies,” said Tom Wrobel, director of alternative investment consulting at Société Générale Prime Services and Clearing.

“Institutional investors continue to seek out non-correlated returns and are becoming more sophisticated in their understanding of CTA model time-frames and portfolio construction methodologies.”