Following a strong start to the year, February was a challenging month for CTAs, with all of the Societe Generale CTA Indices in negative territory for the month.
The Short-Term Traders Index was down -4.29% but remains positive year-to-date (YTD), up +1.19%.
Conditions were particularly difficult for trend-followers which were down -8.96%, the worst monthly return since 2003 and the third worst since the inception in 2000.
The upward trends in equity indices experienced steep reversals, leading to losses of -5.47% in February and posting negative contributions YTD. The correction of equity markets may have led to position changes from long to short as markets became volatile.
The UK’s Investment Association (IA) has today published a number of guidelines regarding the use of last look, seeking to address concerns that this practice can negatively affect the ability of asset managers to meet the needs of their clients.
As part of the guidelines, the IA has also identified a number of instances in which last look should no longer be considered acceptable due to the potential for misuse of information by the liquidity provider.
These include: pre-hedging during the last look window, trading activity based on information derived from rejected trades and trading activity based on information from a request for quotation which is in progress or those that are not won.
Hedge funds have produced more consistent and steadier returns than equities or bonds over both the short term and the long term, according to new research by Preqin, the data provider, and the Alternative Investment Management Association (AIMA), the global representative of alternative investment managers.
The organisations found that hedge funds have out-performed equities and bonds on a risk-adjusted basis over one, three, five and 10-year periods. Risk-adjusted returns, represented by the Sharpe ratio, reflect the volatility of the returns as well as the returns themselves.
Hedge Funds gained 2.11% in January according to the Barclay Hedge Fund Index compiled by BarclayHedge, continuing a strong end to 2017 and extending the Index’ winning streak to 15 months.
The longest consecutive streak of profitable months for the Index was the 18-month period from October 2002 through March of 2004. The current streak has produced a gain of 14.9% for the Index versus 25.7% during the record 18-month streak.
All 17 Barclay hedge fund indices started the year in positive territory.
The Societe Generale Prime Services CTA Index ended 2017 with gains of 2.34%, following a positive last quarter during the year.
Meanwhile, the CTA Mutual Fund Index ended 2017 up 3.32%, the first year in its four-year history it has outperformed the main CTA index. However, difficult conditions continued for the Short-Term Traders Index, as it was down 0.55% in the month, reporting losses of 6.73% for the year.
The SG Trend Indicator completed a challenging year and underperformed the Trend Index, down 14.96% for the year. Continued upward trends in equity indices resulted in small gains again of 0.61% in December, to complete the year with a contribution of 11.91% at the portfolio level.
The flash estimate for the Barclay CTA Index, compiled by BarclayHedge, indicates a 0.54% gain in December. The CTA Index ended 2017 with a 0.69% gain.
“December’s 1.11% rise in the S&P 500 Index extended its unprecedented winning streak to 14 consecutive months and helped push trend traders’ returns a bit more into the black for 2017,” says Sol Waksman, founder and president of BarclayHedge.
He adds: “Continuing uptrends in energy and base metals were the main profit contributors from the commodity sector.”
Diversified traders gained 0.93% in December, systematic traders were up 0.40%, discretionary traders added 0.36%, and agricultural traders rose 0.23%.
Hedge Funds gained 1.21% in December according to the Barclay Hedge Fund Index compiled by BarclayHedge. The index was up 10.44% at the end of 2017.The Barclay Fund of Funds Index gained 0.66% in December, and ended the year with a positive return of 6.20%.Overall, 2017 was a good year for hedge fund performance, with the strongest annual return since an 11.12% gain in 2013 and 10.88% gain in 2009. All 17 of Barclay’s hedge fund indices ended the year in positive territory.
The flash estimate for the Barclay CTA Index, compiled by BarclayHedge, indicates a 0.06% gain in November. Year-to-date, the index is up 0.25%.
“Choppy waters made for tough sailing in November,” says Sol Waksman, founder and president of BarclayHedge. “Although ongoing rallies in US and Japanese equities provided profitable trading for momentum strategies, trend reversals in currencies, precious metals and agriculturals weighed heavily on fund performance.”
Financial/metals traders were able to gain 0.1% in November. Most other CTA sectors had a very small increase or a loss for the month. The Systematic Traders Index rose 0.05% and discretionary traders added 0.03%.
New research from Deutsche Bank shows that returns from FX macro managers have dropped to their lowest levels since the 1980s, despite the fact that “there does not appear to be a structural decline in the excess returns available to FX investors”.
The Deutsche Bank Currency Index (dbCR), which captures the beta available in the FX market by following a simple carry, valuation and momentum strategy, is at -2% for the year, but is well within historical ranges.
Hence the assessment from George Saravelos, an FX strategist at Deutsche and author of the research note, that despite low volatility and uncertainty around key macro issues there doesn’t appear to be a structural decrease in potential FX returns.
Following the improvement in performance in October, the Societe Generale Prime Services CTA Index continued its positive run as it was up +0.30% in November, increasing gains for the year to 1.77%.
Trend followers also made further gains, as the SG Trend Index posted the strongest performance in November, up +0.59% and now +0.75% for the year.
However, short-term strategies continued to face challenging market conditions and ended on average, down -1.07%, pushing losses this year to -6.23%. Performance was mixed across all CTA strategies, as approximately half of trend following, and non-trend CTA managers generated positive returns in November; and despite the dip in index performance, three out of the 10 short term strategies ended the month positive.