March provided evidence that managed futures returns correlate negatively with equity markets. This is a boon for diversifying a portfolio, but it has a downside. Last month demonstrated the downside. Commodity trading advisors were down around 2% by most indexes while equity hedge funds rose with the stock rally. HFR's equity hedge index gained almost 3% and emerging markets index gained 4.5%.
The month was difficult for both long- and short-term managed futures strategies. The AlternativeEdge Short-Term Traders Index shows the daily performance of a portfolio of short-term, diversified CTAs who have an average holding period of less than a 10 days. Among the 27 constituents of the STTI, three posted positive returns—Banyan Capital Management, Cabana Capital Management and Crabel Capital Management (Multi-Product).
In the Newedge CTA Index, which tracks a pool of the largest CTAs, only two out of the 20 constituents posted gains: QFS Asset Mgmt. (QFS Currency) and Eagle Trading Systems (Yield). “March was a unique month in that there were a large number of managers that posted negative returns but the depth of drawdown remained relatively shallow," according to Brian Walls of Newedge.
Trend followers in particular were whiplashed by reversing trends. “The US Federal Reserve's willingness to employ quantitative easing helped to drive interest rates and the US Dollar lower, while propelling prices for stocks and agricultural commodities higher,” according to Sol Waksman of BarclayHedge. “Trend-followers, as a group, were on the wrong side of these markets when they changed direction mid-month.”
The one CTA strategy that gained in March was Barclay's discretionary traders, who apparently made correct judgments about the market reversals and are up 0.90% for the first quarter.
February Returns, Managed Futures and Other Strategies
HFRI Systematic Diversified - 2.06%
* HFRI are equally weighted composites of constituent funds whereas HFRX are constructed according to a special model to represent the performance of a larger hedge fund universe.