Commodity trading advisers and other so-called quantitatively driven hedge funds — which use computer-driven systems to make investment decisions — posted very strong gains in May, pushing several of them into positive territory for the first time in recent memory.
Most CTAs, trend followers and other computer-driven hedge funds have lost money in all or most of the previous four years. So the May gains are a big deal, especially if these firms can maintain their gains for the year.
Last month this embattled group was led by London-based BlueCrest Capital Management’s BlueTrend fund, which surged 6.24 percent in May, pushing its gains up to 3.44 percent for the year. Another London-based firm, Man Group, finally reversed losses in its flagship Man AHL Diversified Futures fund. It has gained 5.64 percent through May, though its numbers are still negative for its most recent three-year and five-year periods. The firm’s riskier but more successful Man AHL Evolution fund returned 10.7 percent over the same period.
The Capital Fund-Discus Composite Program, managed out of Paris-based Capital Fund Management, added 2.1 percent last month, its second straight strong monthly gain, and is now up 0.44 percent for the year. The portfolio, which invests in actively traded futures and foreign exchange contracts, has been in losing territory for three of the past four years. It lost nearly 10 percent last year and nearly 14 percent in 2012.
Several funds that have been solidly in losing territory this year also posted strong gains in May, enabling them to cut their losses. For example, the Aspect Diversified Program, managed by London-based Aspect Capital, rose 2.39 percent last month and is now down just 1.83 percent for the year. The CCP Quantitative Fund - Aristarchus Program, managed by Cambridge, UK–based Cantab Capital Partners, also gained 2.66 percent in May, leaving it down by 4.59 percent for the first five months.
Baltimore-based Campbell & Co.’s Campbell Managed Futures Program rose 2.35 percent in May, its first profitable month this year and only its third profitable month in the past 13 months. As a result, it is still down 8.81 percent for the year.
One fund that has been more consistently in the winner’s circle than most others is the Winton Futures Fund, from London-based Winton Capital Management. It was up 1.69 percent in May and is now up 1.85 percent for the year.
One high-profile fund that bucked this May trend was the Quantitative Investment Management Global Program, which lost 0.36 percent for the month. This left it down 6.23 percent for the year.
The gains followed a rough first quarter for many of these funds. During that period, trend-following systematic and CTA strategies experienced $2.1 billion in investor redemptions, according to Chicago-based industry tracker Hedge Fund Research. It is not clear what drove the returns in May.
However, there is little doubt they benefited from the strong move in equities. Long exposure to broad indexes provided a large part of the gains for CTAs last month, according to a recent report from Lyxor Asset Management, a subsidiary of Société Générale Group.
Lyxor also points out that returns were mixed for foreign exchange trading strategies. It adds that long euro positions incurred losses as the euro weakened against the U.S. dollar. On the other hand, being short the Japanese yen enabled many funds to offset some of the losses.
Lyxor also says both CTAs and global macro funds recently cut exposures to the euro versus the U.S. dollar in anticipation of last week’s European Central Bank meeting, according to Philippe Ferreira, head of research at Lyxor Asset Management. Sure enough, at that meeting the ECB further lowered interest rates. Despite these cutbacks, Lyxor points out that CTAs are still long the euro in net terms.
“This is taking place in an environment that saw the greenback rising against major currencies in May” (except the Japanese yen), Lyxor says.
The funds also profited from commodities, with short positions on precious metals future contracts “proving rewarding,” Lyxor adds in its report.
