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CTAs Report Negative Performance in August New data from Societe Generale Prime Services shows that CTA performance was down across the board in August for its SG CTA indices. All of the SG CTA indices were in the red last month, with 19 out of the 20 CTA Index constituent strategies ending August negatively. The SG Short-Term Traders Index produced the lowest returns in August at – 3.41%, despite remaining the strongest performing of the managed futures indices year-to-date. The flagship CTA index also remains in solidly positive territory year-to-date at 2.19%.
CTA Performance: Decline or Dip? Galen Stops looks at why CTA strategies struggled in 2016, examines why there is enthusiasm from these managers bubbling up for 2017 and looks at the trends that are shaping the managed futures industry. 2016 wasn’t exactly a vintage year for CTAs. The SocGen Prime Services SG CTA Index ended the year in negative territory for the first time since 2012, showing returns of -2.89%. Likewise, the BarclayHedge CTA Index was -1.14% for the year. One explanation for why these firms struggled was the continued low interest rate environment, which has kept bond prices low and helped drive up the stock market.
CTAs Challenged by Divergent Trends Managed futures traders lost -0.44% in March, according to the Barclay CTA Index, which is compiled by BarclayHedge. Year to date, the Index is currently down -0.75%. Due to divergent trends, four of Barclay’s CTA indices recorded gains in March, while four had losses. The Currency Traders Index was up 0.65%, Agricultural Traders gained 0.58%, Financial/Metals Traders were up 0.37%, and Discretionary Traders added 0.16%. In the loss column, Diversified Traders were down -1.15%, and Systematic Traders gave up -0.68%.
CTAs Still in Negative Territory for the Year Although CTA performance improved relative to the previous month, all Societe Generale (SG) Managed Futures indices fell just short of breaking through into positive territory at the end of April 2017. Trend-following had another challenging month in April. The SG Trend Index was down -1.03%, and with 80% of constituent CTA trend strategies contributing negative performance, it underperformed the other CTA indices. It was a mixed result for the broader SG CTA Index, with eight out of the 20 constituent strategies contributing positive performance, and the index remains flat for year.
CTAs Limp into Positive Territory in July Managed futures traders gained 0.64% in July, according to the Barclay CTA Index compiled by BarclayHedge. The index is down 1.04% for the year. The BTOP50 Index, which tracks 20 of the largest CTAs, showed a modest gain of 0.6% and is down 4.2% through the end of July. “Managed futures traders were able to eke out gains last month in spite of the cross currents in commodity markets,” says Sol Waksman, founder and president of BarclayHedge. “Profits resulting from US dollar weakness against the euro and a new record high in the S&P 500 were enough to overcome losses from trend reversals in energy and agricultural products.”
Managed Futures Report Second Month of Gains Managed futures traders showed gains of 1.87% in August, according to a flash estimate of the BarclayHedge BTOP50. For the year-to-date period, the index is down 2.39%. “Managed futures had its best month of the year and the best returns since June 2016 in August,” according to Sol Waksman, founder and president of BarclayHedge. “It’s too early to say that the industry has turned a corner, but the signs are positive.” Systematic traders led the way with a gain of 2.63%; 13 of the 14 systematic traders in the BTOP50 were profitable in August. Discretionary traders were essentially flat for the month, losing 0.04%. Two of the three discretionary traders had small losses.
Managed Futures See Marginal Gains in August Managed futures traders gained 0.54% in August, according to the Barclay CTA Index compiled by BarclayHedge. For the year, the index is still down 0.51%. “Geopolitical uncertainty had investors scurrying for the safety of sovereign bonds,” says Sol Waksman, founder and president of BarclayHedge. “As Harvey advanced, Gulf Coast refineries sought safety. Refiners shut down and spot gasoline shortages propelled gasoline futures 28% higher in the closing days of the month.” Five of the six sub-indices calculated by BarclayHedge recorded gains in August. Diversified (0.94%), systematic (+0.74%), discretionary (+0.28%), financial/metals (+0.17%) and currency (+0.02%) traders all gained. Agricultural traders were the only losing sector (-0.56%) of the month.
New Paper Advocates for Managed Futures Portfolios that include managed futures funds perform better and reduce more risk than those without them, according to research jointly published by the Alternative Investment Management Association (AIMA) and Societe Generale. The paper, titled ‘Riding the Wave’, analysed the risk and return profiles of investment portfolios including and excluding managed futures funds from 2000-2016.  For example, it showed the performance of a traditional asset mix of 60% bonds and 40% equities is enhanced with the addition of CTA strategies, which may increase the return and risk-adjusted returns (by lowering the volatility), as well as considerably lowering and shortening drawdowns.
CTA Performance Down in September Managed futures traders slipped after two months of gains, losing 0.72% in September, according to the flash estimate for the Barclay CTA Index, which is compiled by BarclayHedge. “The Fed’s mid-month confirmation that it was unwinding QE precipitated trend reversals in bond yields, the US Dollar Index, and gold,” says Sol Waksman, founder and president of BarclayHedge. “In spite of the ongoing rally in global equities, there were several treacherous crosscurrents in motion during September and successful navigation was difficult.”
Survey: Hedge Funds Skeptical on Cryptocurrencies In a new survey conducted by BarclayHedge, two thirds of the hedge fund respondents said that are not planning to invest in cryptocurrencies, despite the current hype around these digital assets. The survey of 119 hedge fund managers and CTAs was conducted between September 11 and September 29, 2017. Managers were asked if they currently invest in or plan to invest in cryptocurrencies. In total, 68% answered “No,” while 24% responded that they either currently invest or plan to invest within the next six months. A further 8% replied, “We’re studying the situation.”
CTAs Navigate “Choppy Waters” in November 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%.
CTAs End 2017 on a Positive Note 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%.
CTAs Struggle Amid Equities, USD Reversals 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.
CTA Struggles Continue in March The flash estimate for the Barclay CTA Index, compiled by BarclayHedge, indicates a 0.34% loss in March. Year to date, the index is down 1.71%. “Concerns of a US/China trade war and a data hacking scandal at Facebook helped fuel a second month of declines in global equities and a flight to quality that drove fixed income yields lower,” says Sol Waksman, founder and president of BarclayHedge. The Financials and Metals Traders Index was down 0.71% in March, diversified traders lost 0.55%, and systematic traders gave up 0.50%. “Although aluminum and other base metals gave up ground on the month, the recovery in energy markets helped to offset some of those losses,” says Waksman.
CTA Performance Improves Marginally in April The Societe Generale CTA Index posted a slightly positive return of 0.08% in April as market conditions improved but remained uncertain. Trend followers slightly outperformed other strategies, ending up 0.41%, and short-term strategies also delivered positive performance as the Short-Term Traders Index was up 0.20%. According to the SG Trend Indicator, the performance of trend followers was driven by the energy complex, bonds, currencies, and equity indices. Whilst the upward trend in energy markets continued and contributed 1.37% to the portfolio, the US bond markets also continued their downward trend. The US dollar strengthened against the existing downward trend causing losses in many currency markets.
Trend Followers Drive CTA Losses in May Following a marginal uptick in April, the SG CTA Index moved into negative territory in May, down 2.41% for the month, despite being up mid-month. Trend followers were the main drivers of losses in the second half of the month, and were down, to -2.72%. Short-term CTA strategies handled the changing market conditions relatively well and ended May up, +0.39%. The SG Trend Indicator had a difficult period and was down by 3.50%, leading to a reading of 13.30% for the first five months of this year. Following a recovery in April, equity indices contributed to negative performance, and the commodities and currencies sectors took a dip as well. Meanwhile, the bond market provided some relief as it was the only sector to post a positive contribution, up 0.09%, just holding on to gains despite a mid-month reversal.
CTAs Down in May, Despite Currency Gains The flash estimate for the Barclay CTA Index, compiled by BarclayHedge, indicates a 0.24% loss in May, although currency traders gained 0.88% last month. Year-to-date, the Barclay CTA Index is down 1.76%. “Large systematic traders were the hardest hit by trend reversals in fixed income, energy, sugar and cocoa prices,” says Sol Waksman, founder and president of BarclayHedge. The new MPI Barclay Elite Systematic Traders Index (MBEST) lost 1.85% in May, diversified traders were down 0.64%, financials and metals traders lost 0.44%, and systematic traders gave up 0.44%.
CTA Index Down for June; But Currency Managers Show Gains The flash estimate for the Barclay CTA Index, compiled by BarclayHedge, indicates a 0.05% loss in June. Year to date, the index is down 2.00%. “Trade war concerns sparked by economic sabre rattling shook grain markets, while US pressure on its allies to boycott Iranian oil rallied energy prices to new highs on the year,” says Sol Waksman, founder and president of BarclayHedge. Agricultural traders were down 0.59% in June, the Discretionary Traders Index lost 0.59%, and Diversified Traders gave up 0.21%.
AI-Driven Asset Manager Expands Product Suite Asset Manager, qplum, has launched a multi-strategy AI managed futures program (QMAP) for qualified institutional clients. QMAP aims to give investors access to a diversified investment strategy that trades across different geographies and asset classes. It trades futures such as fixed income, equity indices, FX, commodities and volatility. There is a drawdown control-based risk management in place. The strategy is built using qplum's proprietary, deep learning framework that already powers other portfolios offered by the firm Large amounts of market, economic and other structured data are used to train the models and the entire trading pipeline is fully systematic
CTAs Post Negative Returns for July Following a marginal uptick in performance in June, CTAs faced headwinds again as all the Societe Generale (SG) indices posted negative returns in July. Although the performance was up in the first half of the month, conditions became challenging in the second half. The SG CTA Index was up 1.44% and the SG Trend Index 2.24% mid-month, however by the end performance was down -0.71% and -0.81% respectively. Performance was dispersed as five out of 20 constituent managers in the CTA index posted marginally positive returns. In particular, it was a disappointing end of July for trend followers despite a good start to the month, due to losses in bonds, currencies, and commodities at the end.
CTAs Register Small Gains in July The flash estimate for the Barclay CTA Index, compiled by BarclayHedge, indicates a 0.21% gain in July. Year-to-date, the index has lost 1.98%. “Although managed futures were able to register a small gain in July with 57% of the underlying index constituents reporting profits, the dispersion of monthly returns was quite high, ranging from a 41% gain down to a 15% loss,” says Sol Waksman, founder and president of BarclayHedge. Four of Barclay’s managed futures indices had gains in July, while six had losses. The Cryptocurrency Traders Index was up 5.28%, the Agricultural Traders Index gained 1.04%, and Discretionary Traders Index was up 0.67%.
CTAs: All Grown Up Susan Roberts, product specialist and director of investor relations at Campbell & Company, talks to Galen Stops about how the CTA industry has matured, what purpose these funds are really supposed to fulfill within a portfolio and why performance might be set for an uptick. Galen Stops: In the research paper, Prospects for CTAs in a Rising Rate Environment: A Refresh, your analysis finds that CTA performance has not historically been interest rate regime dependent. Is this pretty much what you expected the data to tell you when you began working on the paper?
The P&L Debate: Is Trend Following Dead? Has trend following had its day as a trading strategy? The Profit & Loss editors go head-to-head on this debate, with managing editor, Colin Lambert arguing that trend following is dead and editor, Galen Stops, arguing the opposite. Which side do you find more persuasive? Why Trend Following is Dead The changing nature of markets tells Colin Lambert that trend following as a strategy has had its day…and then there’s the data. When Galen and I decided to argue our cases over the relative merits of trend following, I immediately thought of amassing mountains of data around moving averages and breakout points. I then reminded myself this is not the way I do things and as such, decided to go the bluster route.
Why CTAs Needn’t Fear Rising Interest Rates Campbell & Company argues in its paper, Prospects for CTAs in a Rising Interest Rate Environment: A Refresh, that CTA performance is less dependent upon the interest rate climate than some may think. The paper builds on the data presented by Campbell in a 2013 paper, which showed that traditional assets, such as US equities and Treasuries, have historically underperformed when interest rates are rising. In addition, it showed that CTA performance has exhibited a different pattern from these assets and has in fact not been regime-rate dependent.
Trend Following Drives Positive CTA Performance in August Following a challenging period in July, CTA performance improved in August as all the indices posted positive performance. The strong month was led by the uptick in the performance of trend followers, as the Societe Generale (SG) Trend Index was up +3.92%, but all CTA strategies benefitted. The SG CTA Index was up 2.64% and the SG Short Term Traders Index was up 1.07%. The SG Trend Indicator was up 4.14% and the key sectors which contributed were commodities, currencies, and equities.