CTAs delivered on their promise in January.
While global stock indexes fell 5 percent or more and many long-short hedge funds plunged by double-digit rates, commodity trading advisers (CTAs) and other computer-driven hedge funds posted strong gains.
Hedge Fund Research’s HFRX Macro: Systematic Diversified CTA Index was up 2.6 percent for the month.
However, many specific funds were up in the mid- to high-single digits.
This prosperity is reminiscent of 2008, when CTAs, which are barely correlated, if at all, to stocks, were solidly profitable, while most hedge fund managers, especially those dependent on the stock market, suffered huge losses.
“The performance of CTAs during the recent market meltdown is remarkable,” says a recent report from Paris-based Lyxor Asset Management. “It highlights the fact that the power of diversification of the strategy in a portfolio remains intact.”
And if the markets remain extremely volatile, chances are CTAs will continue to deliver in this environment.
Lyxor stresses that CTAs and other so-called systematic strategies should never replace discretionary strategies. Rather, they should complement traditional long-only or long-short strategies in a larger portfolio to provide diversification benefits, as clearly occurred in January.
Last month long-term trend-following models fared better as a result of their ability to “smooth short-term market noise,” says Philippe Ferreira, head of research at Lyxor Asset Management in Paris.
More specifically, he says in an e-mail, CTAS have been long fixed income and short commodities. “Over the course of the previous quarter, they gained exposure to themes such as deflation risk and central bank activism,” Ferreira adds. He says that renewed easing last week by the European Central Bank and Bank of Japan helped to boost CTA performance.
As for equities, CTAs, Ferreira says, have mostly been neutral on the extremely volatile asset class.
The very volatile CCP Quantitative Fund - Aristarchus program, managed by Cambridge, UK–based Cantab Capital Partners, was one of the top performers last month. It rose 8.4 percent, after losing more than 8 percent last year. The seesaw fund gained more than 39 percent in 2014 and lost more than 27 percent the previous year.
Cantab was founded in 2006 by Ewan Kirk, an Institutional Investor Rising Hedge Fund Star in 2009, and Erich Schlaikjer. Kirk ran Goldman Sachs’ quantitative strategies group in Europe and oversaw quantitative technology for the firm.
Leda Braga’s London-based BlueTrend fund was up 7.5 percent in January, after gaining about 3.4 percent last year. This is the fund managed by Geneva-based Systematica Investments, which was spun off by BlueCrest Capital Management in 2014.
Roy G. Niederhoffer Diversified Offshore Fund, managed by New York–based R.G. Niederhoffer Capital Management, was up 5.7 percent last month and 11.7 percent for the year through the first four days of February. Equities and fixed income have driven returns in January, sources said.
Sources said the fund has a long volatility profile, which makes the current market environment ideal.
Firm founder Roy Niederhoffer qualified for Institutional Investor’s Alpha’s Rich List in 2009 — his only appearance — when he made $200 million during the previous year’s financial crisis, ranking No. 14. He is the younger brother of the more famous Victor Niederhoffer, a commodities trading pioneer and onetime partner of George Soros. Roy Niederhoffer has a degree from Harvard University in computational neuroscience, the study of how the human brain processes information.
Man AHL Diversified has also rebounded nicely this year, gaining more than 4 percent in January after the London-based fund lost about 2.7 percent last year, its third losing year in the past four.
International Standard Asset Management Systematic Program, managed by Stanley Fink’s London-based ISAM, rose 5.7 percent for the month. This follows gains of 14.9 percent in 2015 and 62 percent the previous year.
Campbell Managed Futures Portfolio, the flagship program of Baltimore-based Campbell & Co., was up 2.7 percent in January.
Bringing up the rear was the Winton Futures Fund, the roughly $12 billion portfolio managed by David Harding’s London-based Winton Capital. The fund was up a little less than 2 percent last month after gaining less than 1 percent in 2015.
