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Trend-following hedge funds playing catch-up on equities bets after missing out on rally

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Global equities have finally attracted the attention of trend-following hedge funds on the back of falling volatility as hopes rise that interest rate rises are coming to an end, according to a report by The Financial Times.

The report cites data from Deutsche Bank as revealing that commodity trading advisers – hedge funds that rely on pattern-detecting algorithms and statistical models to direct trading across markets – have upped their exposure to equities in recent weeks to the highest level seen since before the pandemic.

According to Deutsche, CTAs managing hundreds of billions of dollars in assets now have net long futures positions on the S&P 500, Euro Stoxx 50, FTSE 100 and Nikkei 225, as well as other indices.

The quant investment industry recorded its best annual returns in over 20 years last year on the back of a broad sell-off in stock and fixed income markets, but has largely missed out on this year’s unexpected stock market gains.

According to data from Refinitiv, Société Générale’s CTA index, which measures the performance of 20 major funds – including those managed by Man Group, Lynx Asset Management and Pimco – gained almost 20 per cent last year as equity markets slumped, but is down 2.2 per cent so far this year despite the stock market rebound.

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