Preqin: Volatility Drives Wide YTD Return Divergence Among CTAs

Nov 29 2017 | 9:26pm ET

Volatility in currency and energy markets created a challenging environment for CTAS so far this year, according to new research from Preqin, leading to significant underperformance for the segment as a whole compared to other alternative asset silos. 

As of the end of September, the Preqin All-Strategies CTA benchmark had returned -0.04%, compared to gains of +8.04% for the company’s All-Strategies Hedge Fund benchmark. The performance is not uniform, Preqin noted: Trend followers, the largest style group within the CTA sleeve, have lost -1.62% YTD, while option-writing CTAs gained 7.63% through September. Similarly, humans have outperformed the machines so far this year; systematic CTAs are down -1.02% over the period, while discretionary funds have returned 0.75%. 

Other key highlights from Preqin’s research report:

  • Two-thirds of CTAs (66%) trade in stock indices, while currency and energy futures are traded by 63% and 58% of CTAs respectively. This leaves the strategy exposed to pricing volatility seen in these markets in 2017. 
  • Despite their relatively stronger performance, just one in 10 CTAs operate an option-writing strategy, while 68% of CTAs pursue a trend following approach. 
  • Following a period of stronger performance in recent years, there have been more fund launches in the discretionary space. Discretionary-trading CTAs represent nearly one-third (32%) of all launches in Q1-Q3 2017, an increase of 21 percentage points from 2016. 
  • This divergent performance trend is a relatively recent development: over the five years to September 2017, discretionary CTAs have made annualized gains of 2.84%, while systematic funds have gained 2.22%.

The first three quarters of 2017 have proven to be a difficult performance environment for CTAs,” said Amy Bensted, head of hedge fund products for Preqin. “The euro, Brazilian real and U.S. dollar have all seen significant movement following political events in these regions over the year. These volatile conditions have resulted in fluctuations in monthly returns, with the Preqin All-Strategies CTA benchmark recording five months of gains and four months of losses in 2017 so far.”

“Overall, the strategy has seen a net inflow of almost $14 billion in Q1- Q3,” Bensted added. The number of institutions active in the CTA market has also increased, even as the asset class as a whole has seen large proportions of investors say they are looking to reduce or eliminate their allocations. Despite shaky performance in 2017, investors still see CTAs as providing protection from potential market correction, and so continue to seek exposure to the strategy.” 

Founded in 2003, Preqin is a leading source of information for the alternative assets industry, providing data and analysis via online databases, publications and bespoke data requests. The company's Hedge Fund Online service is a leading source of intelligence on the hedge fund industry, with performance information for over 16,000 hedge funds across strategies and geographies. More than 47,000 professionals in 90 nations use the company’s products. 


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