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Trend-followers ended 2022 with an average gain of 27.3%, beating the return achieved in their breakthrough year of 2008.
Funds using systematic approaches to trade price moves across asset classes closed out the year with a 0.3% loss in December, according to Societe Generale’s index of the ten largest trend-followers.
But their annual return was some way ahead of the 20.9% rise in 2008, which led to tens of billions of fresh allocations in the years that followed.
CTAs in general had an exceptional 2022, with Societe Generale’s tracker up 20% despite a 0.2% loss in December.
Stockholm-based Lynx, the longest-running hedge fund in Sweden, was one of the top performing trend-followers globally, making 36.8% after a 1% rise in December in its $7bn strategy.
Rotterdam-based Transtrend was up 16.4% in its $4.7bn Enhanced Risk flagship.
Trend-following hedge funds attracted mounting criticism in the years since the financial crisis over muted returns, leading to fee compression and the growth of “alternative market” CTAs trading in exchange-traded and OTC instruments.
But its success in providing strong returns and especially valuable diversification last year, a historically bad period for stocks and bonds, will boost the strategy.
Gains were driven by sharp and sustained prices moves across commodities, FX, bonds and other asset classes as central banks battled inflation and ended the post-2008 zero-rate environment.
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AQR, one of the world’s largest hedge fund managers, said in Q4 that the positive environment for trend-followers should persist this year.
“After a strong period of performance for trend-following, many (investors) are worried that they will be ‘late to the trade’ and recent performance will reverse,” AQR said.
“Based on the likelihood for macro volatility to persist and the current economic backdrop supporting the persistence of large market moves, we think there is a reasonable chance that strong trend-following returns continue.”
AFI is planning a special report this month on managed futures performance, innovation in the strategy and the outlook for 2023. Email firstname.lastname@example.org if your firm would like to contribute.