Managed futures hedge funds seize on upward trends, but SocGen warns of “critical” period ahead

Financial data

CTAs and trend-following hedge funds generated positive returns across a broad range of strategy types last month amid the global market rally – but the sector’s year-to-date performance remains mixed, new data from Société Générale shows.

November’s performance was driven by strong momentum across equities, currencies and certain commodities, SocGen said on Tuesday.

Its main SG CTA Index rose 1.27 per cent on the back of November’s market moves.  But the index, which offers a daily snapshot of a select pool of 20 of the largest managed futures strategies, remains 2.26 per cent in the red since the start of 2020.

The SG Trend Index - an equally-weighted barometer of the largest 10 trend-following CTAs’ performances – rose 1.18 per cent in November. The index has steadily clawed back earlier losses suffered during the Covid-19 maelstrom, bringing it almost flat year-to-date, at -0.29 per cent.

Meanwhile, Société Générale’s Short-Term Traders Index, which tracks daily returns for CTAs and global macro managers with 10-day trading windows, is now up 2.35 per cent for the year, having generated a 0.52 per cent rise last month.

However, SocGen suggested that a degree of performance dispersion among shorter-term CTAs belies the index’s strong performance: just six out of the 10 index constituents were in positive territory during in November, with some strategies generating outsized gains of more than 5 per cent.

“Many CTAs - be they trend-followers, shorter-term, or non-trend such as fundamental quantitative macro programmes - were able to adapt well to the new environment and benefit from market movements,” said Tom Wrobel, director of alternative investment consulting at Société Générale Prime Services and Clearing, noting how CTAs have delivered performance “on the downside and the upside.”

Long bets on major currencies against dollar weakness benefited from the momentum, and helped generated some 4.02 per cent at the portfolio level, SocGen said of the main performance drivers.

At the same time, global stock market rallies following the coronavirus vaccine announcement added some 1.08 per cent, strengthening upward trends as some equities benchmarks reached all-time highs.  Certain commodity markets, particularly gold, also benefited from market trends.

Overall, some three quarters of CTA programmes were in the black, posting a maximum return of nearly 7 per cent for the month.

“It was fantastic to see CTAs record strong performance in a month when Covid vaccine news, and the resolution of US political uncertainty, buoyed many markets to record levels,” said Wrobel.

But he warned that the coming months will be “critical” in cementing a positive year for managed futures strategies, and will prove pivotal in how institutional investors positions portfolios as business resumes “in a more normal fashion.”