A number of prominent trend followers, commodity trading advisers and other computer-driven managers posted very strong gains in September after turning in mixed results the previous month.
More importantly, over the two-month period, the large so-called quantitative funds mostly delivered on their implicit promise: that they are largely uncorrelated with the stock market, enabling investors to offset or hedge possibly big losses from their long-short or long-only hedge funds over the most recent streak of extreme volatility.
In general, CTAs and other quant funds in September continued to reduce their equity exposure and increase their fixed-income allocation following the August market sell-off, according to Philippe Ferreira, a senior strategist at Paris-based Lyxor Asset Management, which manages about $21 billion in alternative assets. “As a result, their defensive positioning was rewarding, since financial markets continued to experience unstable conditions in September,” he adds in an e-mail correspondence.
CTAs were also rewarded for being long the U.S. dollar. In August they generally made money from their short positions on commodities and long positions on Treasury bills. Meanwhile, CTAs continued to benefit from the bond rally in the first week of October.
For a number of the CTAs, September was a better month than August, when several posted losses, even though overall market conditions were seemingly similar. Of course, their August losses were much smaller than those posted by many other hedge fund strategies.
“The reason why they fared better in September compared to August is that basically CTAs are dynamic systems,” Ferreira explains. “Ahead of the late-August sell-off they were still slightly long equities. In the wake of the sell-off they cut their equity exposure and were outright short early September. Their positioning was thus more defensive in September, allowing them to deliver positive returns during the latest adverse market episode.”
Specifically, Leda Braga’s London-based BlueTrend fund returned 2.41 percent in September after gaining 0.37 percent in August. As a result, it is now up 5.94 percent for the year. It is managed by Geneva-based Systematica Investments. David Harding’s Winton Futures Fund, managed by London-based Winton Capital Management, rose 3.9 percent last month and is now up 1.78 percent. The firm’s Winton Evolution Fund, which invests in futures but is more heavily invested in equities and experiences higher volatility than the Winton Futures Fund, rose 4.98 percent in September and is up 2.4 percent for the year.
The International Standard Asset Management Systematic Program, managed by Stanley Fink’s London-based ISAM, surged 5 percent last month and is now up 12 percent for the year. Charlottesville, Virgina–based Quantitative Investment Management’s Global Program QEP rose 4.6 percent and is now up 17.74 percent for the year.
The Transtrend Diversified Trend Program - Enhanced Risk, managed by Netherlands-based Transtrend, surged 5 percent last month, cutting its loss for the year to 1.43 percent.
Man AHL Diversified, managed by London-based Man Group, gained about 3.6 percent last month and is now up 0.5 percent for the year. Man AHL Evolution fared much better, rising 3.74 percent in September and 8.18 percent for the year.(Man Group declined to comment on the results.) And Baltimore-based Campbell & Co.’s Campbell Global Assets Fund climbed 1 percent last month, cutting its loss for the year to 3.2 percent.
Looking out the rest of the year or so, Lyxor tells clients that “it is likely that markets will remain volatile.” So it is overweight CTAs as well as long-short equity funds “with low directionality,” noting that these strategies “are attractive diversifiers and should help to navigate the unchartered waters of monetary policy normalization.”
