CTAs are on the mend

After a dismal performance and significant outflows in 2018, trend following strategies are on the mend. A month ago, we signaled the strategy was experiencing green shoots of recovery ; so far this month, it has been the best performing one.

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Based on a sample of 28 strategies, we note that: i) all of them are in positive territory month-to-date (as of March 12th), ii) the best performer is up +3.4% and, iii) the worst performer is up +0.2%. In a nutshell a broadbased CTA recovery is currently happening.

The positioning of CTAs has been significantly reshuffled recently. Equity positioning has turned long in net terms early February and has particularly increased on U.S. equities, while the long-fixed income positioning has stabilized at an elevated level. Concurrently, the long U.S. Dollar positioning is on the rise, in particular vs. the Euro and the Japanese Yen, and commodity positioning continues to be short, due to selling positions on agricultural commodities.

Our views on the strategy stay neutral, which means that we suggest a 10-15% allocation to CTAs in a hedge fund portfolio.1 Despite the poor performance of CTAs in 2018, investors should keep in mind that over the past 20 years CTAs outperformed equities with a low correlation to global stock indices.

As an aside, we are now using new benchmarks to measure hedge fund performance. Due to the narrowness and lack of transparency of publicly available liquid indices, our hedge fund analyst team has developed peer groups composed of 247 strategies with total assets under management close to USD 250bn.

The criteria of inclusion are fourfold: i) we only include UCITS strategies; ii) every strategy is properly assessed and categorized based on fund’s prospectus; iii) we only include strategies with assets under management of at least USD 50 million; and iv) we only include strategies with at least a one-year track record.

The average performance of such peer groups, globally and by strategy, will constitute the basis of our comments on hedge fund performance from now on.

Lyxor Research , March 21

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