Fri, Jul 1, 2016
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Opalesque Futures Intelligence

Index Tracker Review of 2009 and what’s to come.

Thursday, February 04, 2010

Past Year Review and Future Prospects

For hedge funds as a whole, 2009 was a year of recovery—77% of funds recouped the 2008 loss from the high water mark, according to Credit Suisse/Tremont data. It is the best return the industry posted in 10 years, says Oliver Schupp, president of Credit Suisse/Tremont Index LLC.

Strong overall returns made managed futures stand out as the under-performer, just as it had stood out as the over-performer in 2008, when all other strategies (except short-selling) were making the losses that the 2009 gains have now partly erased.

All databases show negative returns for managed futures in December and for the year, but the exact percentage varies across indexes (see Table 1). BarclayHedge reported the smallest loss, with a 0.1% average decline across commodity trading advisors.

Boris Arabadjiev, chief investment officer of Credit Suisse’s fund of funds business, says the bulk of the money in managed futures is in mid- and long-term trend following, which was difficult in 2009 because of sharp reversals in markets, but the two-year compounded return is testament to the benefit of having managed futures in a portfolio.
 

Table 1

  Credit Suisse/Tremont  Greenwich BarclayHedge 
Managed Futures      
Dec -5.0% -2.7% -1.4%
Year -6.6% -1.0% -0.10%
Global Macro      
Dec  -1.4% -0.4% -0.5%
Year 11.6% 9.3% 7.5%
Hedge Fund Index      
Dec 0.9% 1.0% 1.9%
Year 18.6% 19.4% 24.1%

December was a bad month for futures strategies generally. With the US dollar reversing its decline and yield curves steepening, trend followers lost more on fixed income and currencies then they gained from equities and base metals, says a Credit Suisse/Tremont report. High-frequency managers made losses in the first half of the month on sharp intra-day reversals, while mean-reverting models were adversely affected by sharp market
reversals.

“Unexpected trend reversals in December erased much of November’s profits,” says Sol Waksman, president of BarclayHedge. “The sell-off in global fixed income futures, coming on the heels of November’s rally, caught many trend traders off balance and helped to set the stage for a down month.”

However, he found that discretionary and agricultural CTAs made profits. As for the year, he says no managed futures strategy gained or lost very much in 2009.

Global Macro

The end of 2009 was also tough for many global macro managers, although the strategy is positive for the year (Table 1). The December loss was driven by quantitative macro styles while discretionary funds had mixed returns and equity index trading was
generally profitable in both developed and emerging markets.

Performance for the year was robust but over-shadowed by big returns in a number of other strategies, notably convertibles (which recovered from a huge loss in 2008), emerging markets and fixed income arbitrage. One interesting aspect of global macro returns was their wide dispersion—the top manager made over 116%, the worst-performer lost more than 25%.

Looking to the immediate future, the Credit Suisse/Tremont report says the transitional environment may be good for macro strategies:
“As we enter the new year, uncertainty remains surrounding a number of public policy issues. We believe the range of potential outcomes, combined with a noticeable divergence across economies, should provide a robust opportunity set for global macro hedge funds as the market and economic transition continues.”

Mr. Arabadjiev adds another perspective. He argues that the macro environment has changed from 2008 and there are fewer prolonged trends across asset classes. He favors giving more weight to security selection strategies like equity long/short, and less weight to single directional strategies.

Tactical traders such as CTAs tend to under-perform on the way out of market dislocations and while there is still performance to be had from them, securities selection strategies are more interesting at present, he says.

From a long-term perspective, a comparison of strategies and markets from January 1994 through December 2009 reveals that global macro provided the highest annualized return during this 16-year period (Table 2). And it had the second-best risk-adjusted performance, after event-driven strategies, across hedge funds and major markets.
 

TABLE 2  Selected Indexes, January 1994 - December 2009 
  Annualized Return Sharpe Ratio 
Global Macro 12.4% 0.9
Hedge Fund Index 9.3% 0.7
Barclays Global Aggregate 6.3% 0.5
S&P 500 7.6% 0.3
MSCI Emerging Markets 3.9% 0.01

Source: Credit Suisse/Tremont 2009 Industry Review

Asset Flows
Capital inflows became positive in the third quarter of 2009 after the large outflows that started during the 2008 financial crisis. Credit Suisse/Tremont estimates that total industry assets grew to $1.5 trillion as of December, up from $1.3 trillion in June ’09—but still down substantially from a peak around $1.9 billion.

Much of the new money went to long/short equity funds. However, managed futures also was a net beneficiary of inflows. “Despite underwhelming performance for the year, the managed futures sector experienced an increase in new capital with net inflows of $3 billion in 2009 as long-term investors appeared primed to capitalize on returns driven by the bounce back in commodity markets,” says Credit Suisse/Tremont.

One trend that will likely continue is hedge fund managers’ interest in launching mutual funds, in particular using the European mutual fund format, UCITS III. Global macro and CTA strategies, due to their liquidity, are especially well adapted to the mutual fund structure.

For instance, London-based hedge fund firm Brevan Howard launched a UCITS III fund and reportedly plans to add others. See this issue’s Top Ten for Brevan Howard performance.
 



 
This article was published in Opalesque Futures Intelligence.
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Opalesque Futures Intelligence
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Soros, Druckenmiller among hedgies profiting in market plunge, Hedge funds were most bullish on bonds since 2004 before Brexit, Surprise Brexit vote unleashes scramble for dollars, High-yield hit on Brexit but no panic selling, Scientist turned hedge fund founder lured to pound, euro, Hedge fund avoids commodities, posts big gains[more]

    Soros, Druckenmiller among hedgies profiting in market plunge From HITC.com: Bullish positions in gold and volatility and well-timed short bets on China and emerging markets, among other areas, were some of the trades that benefited hedge funds on Friday as markets digested Britons' s

  2. Manager Profile - A 26-year old hedge fund manager called Brexit — here's what he thinks about the historic vote[more]

    From Businessinsider.com: Taylor Mann is not your typical fund manager. The twenty-six year old Texas A&M graduate manages Pine Capital in Larue, Texas (population 160), where he resides with his three-year old daughter. Also atypical compared with many of the largest funds out there, Mann makes

  3. Chesapeake Partners to liquidate hedge fund amidst 'hostile environment'[more]

    Komfie Manalo, Opalesque Asia: Chesapeake Partners Management, the hedge fund run by woman fund manager Traci Lerner said it would return investors’ money after 25 years because the market environment has become "hostile" to manage other people’s money, reported

  4. Europe - George Soros says Brexit has ‘unleashed’ a financial markets crisis, Brexit—what we know, Will the UK’s departure be a ‘soft-Brexit’ or a ‘hard-Brexit’?, Brexit: Six-point action plan for asset managers[more]

    George Soros says Brexit has ‘unleashed’ a financial markets crisis From Bloomberg.com: Britain’s decision to leave the European Union has “unleashed” a crisis in financial markets similar to the global financial crisis of 2007 and 2008, George Soros told the European Parliament in Bruss

  5. Hedge Fund Due Diligence Exchange offers complete due diligence reports at $1500[more]

    Matthias Knab, Opalesque: HFDDX is offering complete alternative investment due diligence reports at $1500 US. Industry professionals can simply go to www.hfddx.com and indicate their interest in sponsoring one or more DD Reports for $1500 each.