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Managed futures post second worst monthly return in 13 months

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The equity market reversal and tumbling commodities in January hit trend-following strategies, causing managed futures managers to post their second worst monthly return in 13 months, according to a report by Lipper Tass.

The Lipper managed futures/CTAs index registered a negative return of 3.23 per cent for January and minus 4.54 per cent year on year.

The sub-strategy ended the month as the second worst performer in the hedge fund performance league table.

The degree of dispersion among individual fund returns increased further from the previous month’s reading. A 41.08-percentage-point monthly performance difference in January divided the top and bottom performers of the actively reporting managers tracked by Lipper.

January reversed December’s readings. Managers with assets in excess of USD45m returned a worse average performance at minus 3.43 per cent month on month—30 basis points below the average reading for the strategy. Large managed futures managers returned a negative 3.59 per cent on average for the 12-month rolling period at the end of January 2010.

Global stocks pulled back amid fears about the global economy and the fiscal health of some Eurozone countries, with the MSCI World TR Index posting minus 4.11 per cent for January. All three major US stock indices registered their worst monthly performance since February 2009: the
S&P 500 TR, the Nasdaq, and the Dow Jones Industrial Average posted minus 3.60 per cent, minus
5.37 per cent, and minus 3.46 per cent for the month, respectively.

Developed and emerging markets edged down 4.84 per cent and 5.56 per cent, respectively, month on month. The developed markets were weighed down by double-digit negative returns for Spain (-11.82 per cent), Greece (-10.42 per cent), and Portugal (-10.23 per cent). There were, though, some bright spots in Denmark (+3.13 per cent) and Finland (+2.27 per cent).

Meanwhile, emerging markets posted losses during the month, with BRIC members posting disappointing returns—Brazil (-10.98 per cent), China (-8.64 per cent), and India (-5.31 per cent). The top gainers on the performance league table were Egypt (+8.96 per cent) and Morocco (+4.30 per cent).

Against a basket of currencies the ICE Futures US Dollar Index was up 2.06 per cent for January as data showing the US economy grew in fourth quarter 2009 at the fastest pace in more than six years boosted views the US was recovering faster than other developed countries. The manufacturing sector in the US expanded in January for the sixth consecutive month; the PMI rose to 58.4 per cent—its highest reading since August 2004, and the overall economy grew for the ninth consecutive month.

The US dollar appreciated 3.17 per cent against the euro and 2.89 per cent against the South African rand. It depreciated 2.80 per cent against the yen, while it appreciated 0.94 per cent against the sterling and 1.42 per cent against the Australian dollar.

Commodity prices posted the largest monthly drop in 13 months on concerns that demand may slow. Moreover, the stronger US dollar hit commodities across the board as it made commodities denominated in the currency more expensive for holders of other currencies. The Reuters/Jefferies CRB Index slumped 6.28 per cent month on month, coupling with stock market losses.

All sectors except soft commodities (+3.47 per cent) ended in the red. Net long positions in sugar (+10.95 per cent)—the only agriculture commodity posting a positive return, sustained by strong demand and tightening supplies—were not sufficient to pare losses in other commodity sectors.

Industrial metals (-8.92 per cent) was the worst performing sector, bettered somewhat by energy (-8.63 per cent). Zinc (-17.96 per cent) and lead (-16.99 per cent) were the weakest industrial metal components during the month.

Gold tumbled 1.25 per cent, while heating oil dropped 9.95 per cent. Crude oil prices (-8.67 per cent) traded sideways on concerns about falling demand in China and the US—the world’s two biggest energy consumers—despite falling crude stockpiles. Crude supplies dropped 3.9 million barrels (-1.2 per cent) to 326.7 million barrels.

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