Trend followers, commodity trading advisers and other strategies that rely on computers to make investment decisions suffered a big setback in February after posting strong gains last year and in January.
Even after surging 3.6 percent in the final week of February, CTAs were able to finish the month only at the break-even point, according to a research report from the managed account platform of Paris-based alternative investment firm Lyxor Asset Management. CTAs also lost, on average, another 0.6 percent in the first week of March, according to Lyxor.
The firm points out that reversals in certain trends have hurt trend-following funds. For example, the price of oil suddenly rebounded last month, while U.S. rates started to rise.
“As such, some questions remain regarding their ability to outperform in the near term as the U.S. bond market rally seems to get closer to an end,” Lyxor adds in a recent report.
One of the best performers in February was Paris-based Capital Fund Management’s Discus Feeder program, which rose 2.75 percent last month, pushing up its gains for the year to 10.4 percent. The BlueTrend fund, formerly managed by London-based BlueCrest Capital Management but now managed by Leda Braga’s London-based Systematica Investments spin-off, gained just 0.1 percent in February after surging 9.54 percent in January.
However, most of the other computer-driven funds lost money last month. The Man AHL Diversified fund, for example, fell about 0.75 percent last month, trimming its gain for the year to 6.4 percent. It is managed by London-based Man Group. Cantab Capital Partners’ Quantitative Fund Aristarchus program lost 2.5 percent in February. The Cambridge, UK–based fund had gained more than 11 percent in January alone and more than 39 percent in 2014. The Aspect Diversified Program, managed by London-based Aspect Capital, lost 0.44 percent last month, trimming its gain for the year to 4.14 percent.
London-based Mulvaney Capital Management’s Global Diversified Program QEP lost 0.5 percent last month after gaining nearly 7 percent in January. It gained 67.35 percent in 2014, making it one of the best-performing hedge funds last year.
The Campbell Managed Futures portfolio lost 0.26 percent in February, trimming its gain for the year to 5 percent. It is managed by Baltimore-based Campbell & Co.
Interestingly, just as CTAs’ performance has paused, investors are pouring money into the asset class, with Lyxor reporting positive fund flows for CTAs in January.
That’s in contrast to last year, according to Fairfield, Iowa–based data provider BarclayHedge, which reports that money flowed out of CTAs in the first half of 2014. “Redemptions broke a 13-year string of annual inflows,” it adds in a recent report.
This wound up being very bad timing for investors who had endured several years of lousy performance. CTAs began their ferocious rally last year in May, just as investors were bailing out.
The big question now is whether fund flows are picking up at the same time that the CTA rally is fizzling, or whether CTAs are merely pausing before continuing their rally. In any case, BarclayHedge reports that most investor portfolios are currently underinvested in managed futures, so for now their timing may be right after all.
