Trend-following hedge funds rebound in “fantastic” February

Tom Wrobel, Societe Generale

Managed futures hedge funds and short-term trading strategies have rebounded strongly in recent weeks, with each of Société Générale’s three main CTA and trend-following indices finishing February in positive territory.

This segment of the hedge fund industry – which trades on market trends across a selection of asset classes, including equities, bonds, commodities and currencies, typically using computer-based algorithms – had earlier suffered losses in January.

But downward momentum in bonds, along with rising commodities prices – especially in crude oil – and stock market gains helped power CTAs’ returns last month, SocGen said on Friday.

SocGen’s main broad-based SG CTA Index rose 2.88 per cent, reversing January’s 1.14 per cent slide. The index – which measures the daily performance of 20 of the largest managed futures hedge funds – is now up 1.64 per cent so far in 2021.

Meanwhile, the SG Trend Index, which tracks the wins and losses of the 10 biggest trend-following hedge funds, fared even better, surging 3.64 per cent in February. Having dipped 0.75 per cent the previous month, the benchmark is now up 2.86 per cent on a year-to-date basis.

Tom Wrobel, director of capital consulting at Société Générale Prime Services and Clearing, noted the SG Trend Index had earlier peaked at a mid-February high of 7.42 per cent thanks to soaring equities returns. But those gains eroded slightly, as rising bond yields and concerns over inflation disrupted momentum causing markets to retrench.

Short-term trend-following funds have also advanced into positive territory after stumbling in January. The SG Short-Term Traders Index – a daily returns snapshot of CTAs and global macro managers with 10-day trading windows – rose 3.13 per cent in February.

That proved the best month for shorter-term CTA strategies in aggregate since January 2018. The index is now up 1.45 per cent since the start of the year.

Eight out of the 10 individual short-term CTA constituents contributed positive performance, with the best manager recording double digit gains, SocGen observed.

“It was fantastic to see CTAs resume their run of positive performance from the end of 2020, and recover from small losses after markets pulled back slightly at the end of January 2021,” said Wrobel.

“Institutional investor interest in CTAs continues to be high, as many different CTA strategy types were able to take advantage of market conditions in February to post positive performance, led by trend-followers but also including non-trend machine learning and shorter-term programs – the latter which recorded the strongest month’s performance in three years.”