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Price Reversal in Currencies Catches CTAs Out

The currency sector was the main drag on CTA performance in May,
as data from Societe Generale Prime Services (SG Prime Services) shows that CTAs have now completed their third consecutive month
of negative performance.

All five daily indices that SG Prime Services
calculates were down in May. The SG CTA Index, which measures a broad range of
managed futures strategies, has now also dipped just below zero on year-to-date
performance for the first time this year.

Short-term trading strategies continue to be the
best performers, with the SG Short Term Traders Index dipping to -0.93% in May,
but still comfortably positive for the year so far, at 4.18%.

Attribution data from the SG Trend Indicator
showed that the currency sector was the main contributor to negative portfolio
returns, detracting -5.33%. SG Prime Services says that this was predominantly due
to short US Dollar positions making losses as the US Dollar rallied against
most major currencies.

Other sectors were more varied, with bonds and
equity indices contributing positive returns, compared to negative returns from
commodities and interest rates. Precious metals were a particularly difficult
sub-sector, as long gold and silver positions gave back their April gains,
contributing a combined -1.48%.

“Our indices show that the continued
absence of consistent market trends is making it hard for managed futures
strategies to consolidate gains – especially amongst trend followers.

“The high correlation of our Trend
Indicator to the Trend Index gives a good idea of the markets that have been
challenging for these strategies, and returns from currencies appear to have
been particularly volatile.

“Some market watchers are starting to call
a rally in commodity markets, and with the price of crude oil now bouncing back
from its low point in January, we have seen the beginning of an energy trend
with CTA strategies currently well positioned to extract returns from these
markets in coming months,” says James Skeggs, global head of alternative investments
consulting at SG Prime Services.



Galen Stops

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