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CTAs continue to gather pace in February with balanced bets

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CTAs are maintaining their strong start to 2020, with trend-following portfolios well-balanced between cyclical and defensive assets, boosting profits in the first six weeks of the year.

Long positions across equity, fixed income, precious metals and US treasuries have strengthened returns lately, analysts at Lyxor Asset Management said, adding that several factors may to support performance throughout the year.

Lyxor’s weekly briefing note, by Philippe Ferreira, senior strategist, Jean-Baptiste Berthon, senior strategist, and Pierre Carreyn, hedge fund analyst, observed how CTA portfolios are more balanced between cyclical assets – specifically equities – and defensive assets such as fixed income, precious metals, and US treasuries.

At the same time, as the US presidential election campaign gathers pace, the incumbent Trump administration will seek to avoid causing volatility in stock markets.

“This may contribute to limit trend reversals in equities,” Lyxor observed.

Société Générale’s SG CTA Index – which tracks the daily performance of a select pool of the largest trend-following managers – is up 4.19 per cent year-to-date, having surged 3.32 per cent so far during February. Meanwhile, the SG Trend Index has advanced 3.42 per cent in 2020, powered by a 3.15 per cent rise this month. The SG Short Term Traders Index – which measures the performance of CTAs and global macro funds running short-term strategies – is up 1.47 per cent this month, and 4.13 per cent since the start of the year.

Recent portfolio adjustments involve higher long positions in US equities and bonds, increase shorts in EUR/USD and long GBP/USD trades. CTAs have also reinforced their long precious metals/short energy trades since the beginning of the year, the note said.

Overall, Lyxor is maintain a neutral stance the strategy. Explaining its view, analysts pointed to trend-followers’ increasingly long bets on what they see as “richly-valued” stocks.

“In the short term, equity volatility may rise as global blue chips exposed to China – on the supply or demand side – are issuing profit warnings after having experienced an impressive bull run,” Lyxor observed. “This could cause headwinds to CTAs’ long equity positions, though losses could be offset by long USD, long fixed income and long precious metals positions.”

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