Trend-following hedge funds start July with a stumble

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Trend-following hedge funds and CTA strategies have dipped slightly in recent days after ending the first half of the year in positive territory, Société Générale’s CTA indices show, but the sector is well-placed to capitalise on commodities and equities trends going forward.

SocGen’s main CTA Index – a daily performance barometer of 20 of the largest managed futures hedge funds’ returns – lost 1.14 per cent in the opening week of July, having earlier ended the first half of 2021 up 6.51 per cent. The benchmark remains up some 5.3 per cent since the start of January.

Similarly, the SG Trend Index, which notched up a 7.39 per cent return in the opening six months of the year, has fallen 1.85 per cent since the start of July. The index, which tracks the gains and losses of the biggest trend-following hedge fund strategies, is 5.40 per cent in the black year-to-date.

The SG Short-Term Traders Index has added 0.37 per cent return in July, after gaining 1 per cent in the first half, putting it up 1.37 per cent year-to-date. The index charts the performance of managed futures funds that trade shorter-term market trends, tracking the daily returns of those CTAs and global macro managers with 10-day trading windows.

Trend reversals in currencies and fixed income markets last month meant CTAs have endured a tricky patch lately, but Lyxor Asset Management is buoyant on the sector entering the second half of 2021.

Upwards movements in commodities – particularly energy markets – along with equities trends are set to sustain CTA performance, Lyxor strategists noted in a recent market commentary.

“Trend-following conditions have been highly supportive in equity and energy markets, with the Sharpe ratio over the past three months standing respectively at 0.8 and 1.4 standard deviations above the average of the past five years,” Lyxor said. “Concurrently, positions in FX and fixed income have been largely neutralised.”