CTAs Retain Double-Digit Gains, but Cautious After Subdued May — Evening Brief – 06.11.24

Societe Generale’s main SG CTA Index, which analyzes the performance of 20 flagship strategies run by large firms such as Winton, AQR, Aspect Capital, and PIMCO, was down 0.62% for the month. However, the benchmark’s year-to-date performance, which is regarded as a crucial indicator of the larger CTA sector, has remained robust at 11.18% since the beginning of January.

The SG Trend Index, Societe Generale’s daily measure of the gains and losses of the 10 largest trend-following hedge fund strategies, soared 13.41% over the first five months of 2024 despite the index, which includes funds managed by Graham Capital, Lynx, Systematica, and Man AHL, falling 0.79% in May.

Meanwhile, the SocGen Short Term Traders Index was steady for the month, at 0.03%. The index, which monitors CTAs and global macro managers with 10-day trading windows, has had more modest returns this year, rising 3.60% since the beginning of January.

This year’s strong results have been driven by a combination of successful long positions in stocks and cocoa markets, as well as short bets on the Japanese yen and natural gas futures, which boosted CTAs’ first-quarter performance into double digits.

However, some investors are approaching trend-followers’ short-term outlook with caution.

“Mindful of the difficulty of accurately predicting a prevalence of trend across asset classes we retain a neutral outlook on their performance credentials over the short-term,” said HSBC Asset Management in its latest alternative investment quarterly update.

Meanwhile, in a recent Man Group commentary on anticipated performance challenges across hedge fund strategies, Faisal Javaid, head of investment risk solutions at Man External Alpha, focused on how momentum, crowding, and volatility have influenced returns this year.

He observed that, while trend-followers have effectively acquired time-series momentum for much of 2024, current data indicates that hedge funds are long momentum equities across both time-series and cross-sectional momentum, which tend to sell off together.

“Trend strategies are off to a great start to the year and exposures are high,” Javaid noted. “It’s important to be disciplined and trim back allocations to, or under, long term targets as they grow as a proportion of an overall portfolio through positive performance.”