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Trend-following hedge funds make a positive start to January

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Managed futures hedge funds have made a positive early start to the year, following a tough 12 months in which volatility spikes and see-saw performances in many assets made it tricky for computer-based strategies to capitalise on market trends.

Two out of the three daily CTA indices produced by Société Générale were in the black entering the final week of January.

The main SocGen CTA Index, which measures the daily performance of a select pool of 20 of the largest managed futures strategies, has advanced 1.43 per cent since the start of 2021.

The gain continues the index’s recent positive momentum: the benchmark surged 5.54 per cent in December – its biggest monthly rise for more than five years – which helped clawed back losses from earlier in the year to put its year-end 2020 return at more than 3 per cent. 

Meanwhile, the largest 10 trend-following hedge funds, as measured by the SG Trend Index, have made more than 2 per cent in the first three weeks of 2021.  The index finished December up 6.55 per cent following a topsy-turvy 12 months, and overall generated an annual return of 6.24 per cent in 2020.

Société Générale’s Short-Term Traders Index, which tracks daily returns for CTAs and global macro managers with 10-day trading windows, is marginally in the red, however.

As of midday Monday, short-term strategies have dipped -0.15 per cent since the beginning of January. The index finished last year up some 3 per cent, having risen 0.62 per cent in December.

While the hedge fund industry overall enjoyed a sterling 2020, posting its best performance in a decade, researched indicates many CTAs and machine-based hedge fund strategies – which aim to generate profits from investment trends across a medley of asset classes and markets using algorithms – endured a tricky 2020.

Episodic volatility and see-saw performances across assets disrupted momentum, making it tough for computer-driven funds to react effectively to prevailing patterns, with many markets only moving favourably for the sector at the tail-end of last year.

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