Managed futures hedge funds generate ‘fantastic’ Q1 returns amid upward market momentum

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Upwards trends

Managed futures hedge funds have finished the first quarter of the year in positive territory, seizing on upwards trends in equities indices and the US dollar while weathering the recent bond market and commodities upheaval. 

Each of Société Générale’s three main CTA and trend-following indices posted gains during March, rounding off what Tom Wrobel, director of capital consulting at Société Générale Prime Services and Clearing in London, describes as a “strong first quarter” for the CTA and trend-following hedge fund sector. 

SocGen’s main broad-based SG CTA Index advanced 2.55 per cent in the first quarter of 2021. The benchmark, which tracks the daily performance of 20 of the largest managed futures hedge funds, added 0.90 per cent in March. That came on the heels of a 2.88 per cent rise back in February, which had reversed January’s 1.14 per cent slide. 

Meanwhile, trend-following hedge funds, as measured by the SG Trend Index, outperformed for the second consecutive month, adding 1.09 per cent in March following February’s 3.64 per cent return. Having earlier dropped 0.75 per cent in January, the recent gains put the index – which tracks the wins and losses of the 10 biggest trend-following managers – up 3.97 per cent at the end of Q1. 

SocGen notes that eight out of the ten trend-follower constituents in the SG Trend Index recorded gains in March, compared to just two-thirds of all CTAs in the broader CTA Index. 

Elsewhere, shorter-term CTA funds also finished the three-month period in positive territory. The SG Short-Term Traders Index – a daily returns snapshot of CTAs and global macro managers with 10-day trading windows – added 0.51 per cent last month. That pushed its Q1 return to 1.98 per cent. Earlier in the quarter, the Short-Term Traders Index rebounded 3.13 per cent in February, having lost 1.59 per cent during a “difficult” January. 

Individual manager performance was varied in the short-term CTA space, SocGen notes, with the index split evenly between positive and negative returns, but with some strong positive CTA gains bringing the average up. 

Overall, trend-following managers successfully seized on upwards trends across equity indices and, to a lesser degree, the US dollar, with both driving home recent returns, SocGen explains.  

On the flipside, bonds and commodities proved patchy. The downward slide of US government bonds continued, providing positive gains, but non-US bonds saw their movement halted, disrupting performance. Similarly, choppier commodities markets – where some upwards trends persisted, offset by pullbacks in others – unsettled momentum in CTAs’ positions. 

“It was fantastic to see the positive performance continue from 2020 after a minor setback in January. All different CTA strategies have delivered positive returns so far this year, fully deserving the attention they are receiving from institutional investors,” says Wrobel. 

“Trend-following strategies are leading performance, with a diverse set of performance drivers so far this year from different sectors and types of trends, and we will continue to monitor this closely.”