Commodity trading advisers and trend followers finally moved into positive territory for the year after posting gains in November — but while CTA indexes are basically flat for the year, the sector has produced some notable winners and losers among its biggest players.
The Newedge CTA Index rose about 1.57 percent last month, putting it up by 0.14 percent for the first 11 months, while the Newedge Trend Index jumped 2.58 percent last month and is now up 1.91 percent for the year. Lyxor Asset Management, a subsidiary of Société Générale Group, says the best-performing group in November among 13 strategies it tracks was the CTA Long Term Index, which gained 4.2 percent for the month. Its CTA Short Term Index rose 1.6 percent.
Lyxor says that last month CTAs benefited from the strong equities market, what it calls “adequate positioning” in foreign exchange — being long the euro and short the Japanese yen — and commodities, specifically, being short gold. “It is noticeable that long-term trend followers continue to significantly outperform pattern recognition strategies,” it adds in a new monthly report.
Even so, many of the individual funds that make up these indexes are still struggling to get back into profitability. In fact, one of the only profitable large firms plying these strategies this year is David Harding’s London-based Winton Capital Management, which continues to lead the way. Its flagship Winton Futures Fund rose 2.2 percent in November and is now up a respectable 9.01 percent for the year. The firm’s Winton Global Equity Fund climbed 1.72 percent in November and is now up 27.07 percent for the year.
The Winton Evolution Fund, which the firm describes as a supercharged version of the Winton Futures Fund, jumped 3.32 percent in November and is now up 14 percent in the first 11 months. The fund has 40 percent of its risk in cash equities versus 25 percent for the Winton Futures Fund and targets 12 percent volatility versus 10 percent for the Winton Futures Fund. The firm also runs the Winton Diversified Strategy Fund, an onshore U.S. fund that was launched in July 2013. The combined assets under management of the Winton Evolution Fund and the Winton Diversified Strategy Fund are more than $300 million.
Why has Winton fared so well? It has heavily cashed in on the strong equities market, faring very well in both index positions and individual cash equities. It has also benefited from low volatility. As a result, when many CTAs lost all their earlier gains over the summer, Winton’s returns remained positive.
By contrast, the BlueCrest BlueTrend fund rose less than 1 percent last month. Its U.S. dollar shares are now down about 9.32 percent for the year. The sterling shares are down 8.52 percent. In both September and October, the same three sectors provided positive returns: equities, short-term interest rates and bonds, BlueCrest says in monthly reports. Other sectors cut into returns.
For example, in October the firm says the three main commodity sectors “were minor detractors,” including crops and to a lesser extent energy and metals. BlueCrest also says currencies detracted from its performance, mostly due to huge fluctuations in the U.S. dollar and mixed performance across other individual markets. BlueCrest’s November monthly analysis is not yet available.
BlueTrend was actually up 7.6 percent through April but plunged more than 8 percent in May, when the global markets were rocked by the first hint that the U.S. Federal Reserve might begin tapering later in the year. Like most other CTAs and trend followers, it took a big beating that month in its bond and short-term interest rate bets when the big upward trend abruptly reversed direction. At the time, BlueCrest assured investors in its May monthly report that “the model responded to the market moves as designed, by significantly reducing risk. . . . This reduction was most pronounced within the bond sector.”
Although most other funds that have been struggling for most of the year also extended recent winning streaks in November, they remain mired in losing territory. For example, the Aspect Diversified Program, run by London-based Aspect Capital, rose 1.99 percent in November, reducing its loss for the year to 4.45 percent.
The CCP Quantitative Fund–Aristarchus Program, run by Cambridge, England–based Cantab Capital Partners, gained a healthy 2.8 percent in November and is now up nearly 7 percent for the past three months. Still, the fund is down 22.75 percent for the year.
The Quantitative Investment Management Global Program QEP made 2.21 percent in November, its fourth profitable month in the past five. However, it is down 4.48 percent for the year through November. The short-term trading strategy, which trades only futures, is an offering from Quantitative Investment Management, one of the world’s largest commodity trading advisers.
London-based Man Group’s Man AHL Diversified fund was up 1.90 percent (in dollar terms) in November and is now down just 1.60 percent this year through the end of November
Well, you can say one thing for the CTAs and trend followers — they are living up to their billing as being noncorrelated to equities. Little surprise, then, that industry tracker Hedge Fund Research reported that systematic/CTA and commodity-focused strategies suffered net outflows of capital in the third quarter.
Of course, the big question is whether investors are getting out of the asset class precisely when they should be getting back in.
