Tuesday, January 31, 2023

Hedge fund October performance: CTAs flat as equities rise


  • Trend-followers flat but up 35% after 10 months of 2022
  • Treasury shorts offset rare rise in equities this year
  • Better month for equity strategies, Ackman up 9.9%

Managed futures funds, which have led industry performance this year, were largely flat in October.

Equity funds did better against the backdrop of a better month in stocks, with the S&P 500 up 8%, but there was high dispersion. Returns generally depended on how much risk funds had left on the table with net and gross exposures still low.

“Performance for Europe- and US-focused funds was positive in October, though upside capture remains diluted as funds have generally displayed more bearishness via lower directional exposures,” reported Man Group in an update.

Bill Ackman’s Pershing Square Holdings halved its losses for the year, gaining 9.9% but still down 12% with two months of 2022 remaining.

Dan Loeb’s Third Point Investors Limited made 2.8% but remains down 23.5%.

Performance was mixed in credit and generally positive in event-driven. There were “negative returns from macro-driven strategies given the reversals in common themes such as short equities and long the US dollar,” noted Man Group.

The average CTA fund made 0.2%, putting it up 26.4%, while the ten largest trend-followers declined by an average 0.1%, but remain up 35.4% for the year, according to Societe Generale.

Transtrend’s Enhanced Risk flagship, which runs $5.6bn, made 1.3% in October, putting it up 29.7% for the year. Lynx made 0.3% and is up 45.9% for the year.

After gaining heavily from sell-offs this year, the CTA sector answered concerns that a sudden rise in equities would spark a sharp drawdown, according to Andrew Beer, of Dynamic Beta Investments, a hedge fund replication firm.

“During bear markets, a typical managed futures hedge fund may short equities, but volatility (and bear market rallies) will limit exposure,” he said. “Last month, Treasuries dropped as rates rose further, and hence Treasury shorts appear to have mitigated losses.”