It looks like this year’s commodity trading adviser rally is for real, as 2014 is shaping up to be the best year for computer-driven hedge funds since 2008.
Most of these funds, which are the computer-driven siblings of human-driven macro funds, extended their gains in September and are easily beating the equity indexes, underscoring once again that CTAs are not closely correlated with the stock market. Of course, this has been a bitter reality since the stock market’s rally began in March 2009, as many CTAs and trend followers have generated one or more losing years. But in this year’s volatile equity environment, the commodity trading advisers, trend followers and other so-called systematic funds are leading the way.
For example, the Newedge CTA Index rose 1.8 percent in September and is up 5.9 percent for the year, while the Newedge Trend Index jumped 3 percent. CTAs are up 6.4 percent year to date, making them the best-performing strategy this year.
“This shows that selecting the right hedge fund strategy, adapted to a given market environment, is key to generating uncorrelated alpha,” Lyxor Asset Management said in a recent report.
Many funds are faring much better than the indexes. For example, Lyxor’s Epsilon Managed Futures Fund Class A U.S. dollar shares are up 18.55 percent for the year. Most of the gains came in the past four months. The mid- to long-term trend-following fund was up 4.54 percent in June and 16.16 percent in the third quarter. According to Paris-based Lyxor, in the third quarter the main contributions came from bonds; soft commodities, which includes grains, cotton, soybean oil, live cattle, sugar, coffee and cocoa; and to a lesser extent, metals and energy.
Man AHL Diversified seems well on its way to its first profitable year in four years after the fund, managed by London-based Man Group, posted a 1.45 percent gain last month through September 26, putting it up 17.64 percent for the year. The Aspect Diversified Program, managed by London-based Aspect Capital, posted a 1.61 percent gain in September, its fifth profitable month over the past half year. The fund, which lost money the two previous years, is now up about 6.68 percent for the year.
Paris-based Capital Fund Management’s Discus Composite Program surged 9.9 percent last month, its fifth profitable month in the past six. September was its most profitable month since July 2002. It is now up about 14 percent for the year after losing money in each of the two previous years and three of the past four years. The CCP Quantitative Fund - Aristarchus Program, managed by Cambridge, UK-based Cantab Capital Partners, rose 0.61 percent last month through September 26, extending its gain for the year to 3 percent. It lost 27.65 percent last year.
The Campbell Managed Futures portfolio gained 5.73 percent in September and is now up five of the six past months after losing money the first three months of the year. Managed by Baltimore-based Campbell & Co., it has risen 6.77 percent for the year. Unlike most other CTAs, it made money in each of the two previous years and three of the four previous years, following a three-year losing streak.
However, not all of the CTAs and systematic funds fared as well last month. David Harding’s Winton Futures Fund is enjoying more modest success this year. The London-based fund managed by Winton Capital Management, which invests in futures and equities, lost less than 1 percent in September and was up less than 1 percent for the quarter. It is also up slightly less than 2 percent for the year.Unlike most other CTAs, the fund had been making bigger bets on the surging stock market in recent years. So, this equity skew is causing WFF to lag others. But the combined performance with prior years is much better than other funds that posted huge losses.
The BlueCrest BlueTrend sterling shares lost 1.91 percent in September. Even so, the fund is still up 10.53 percent for the year. Last year the London-based fund lost money for the first time, falling 11.38 percent.
In August, when the fund rose 5 percent, it said in a report that it made money in four of its seven broad strategies, mostly from long positions in many different fixed-income markets. It added that it did especially well in developed markets, noting that benchmark yields dropped to new lows.
That same month, BlueCrest Capital Management cut its management fees on BlueTrend and its other quantitatively driven funds to 1.5 percent from 2 percent. Then in September the London-based firm said it was spinning off its $8.3 billion computer-driven hedge funds into a new firm, Systematica Investments, which will be led by Leda Braga, BlueCrest’s head of systematic trading. It will be responsible for the BlueTrend fund and BlueTrend 2x Leveraged Fund.
Ironically, BlueCrest may be bailing out of the strategy just when the trend is moving in a positive direction.
