Managed Futures Gain Asset Share
Managed futures assets were flat last year while hedge fund industry assets were decimated by redemptions and trading losses. The latest data from Barclay Hedge has commodity trading advisor assets at $206 billion at the end of 2008, about the same as in 2007. Meanwhile, total hedge fund assets shrank from $1.9 trillion in May 2008 to $1.1 trillion in December, according to Barclay Hedge.
That means managed futures assets are at 19% of hedge fund assets. In 2002, by contrast, the ratio was close to 6%. The managed futures sector may get an even larger percentage share of the shrinking asset pie, but how much additional money that would bring is unclear. With managed futures the top-performing strategy after short selling in 2008, many CTAs hope to gain assets in 2009.
Investors continued to redeem heavily from hedge funds in January, according to press reports. Because databases contain different groups of managers and use different criteria in extrapolating industry assets, the numbers vary across data sources. For instance, HedgeFund.net estimated that hedge fund assets fell to $1.84 trillion in December, down from a peak of $2.97 trillion in the second quarter of 2008. This estimate is larger than the Barclay number due to the application of different criteria, among other reasons.
Despite the disparity in the numbers, the growing size of managed futures relative to the rest of the industry shows up in different databases. The exact percentage varies, however.
CTAs Slip in January, Discretionary Beats Systematic
Managed futures ended a successful run in 2008 with a loss in January, while other hedge fund styles recovered. Depending on the database you consult, the CTA January loss varied from 0.1% to 0.56%. But Managed Futures Europe posted a gain, while the larger Barclay database shows that discretionary traders made money during the month (Table below).
January Returns, Various Indexes
Barclay CTA Index - (-)0.13%
Global Advisors Eases Redemption Terms
Global Advisors LP, a specialist commodity hedge fund manager located in London and Jersey, agreed to remove all gating provisions contained in the terms and conditions of its Global Commodity Systematic Fund.
Daniel Masters, who co-founded Global Advisors in 1999 with Russell Newton, says GCS is a highly liquid program that trades the largest of the exchange-listed physical commodity futures contracts.
“In the current investment climate we are passing on our underlying liquidity to investors in our fund,” he says. “This action is in response to demands from investors globally, that we feel are justified, that hedge fund managers should always be able to meet redemption requests.”
The Global Commodity Systematic program has returned a compound annualized rate of 19% since its inception in 2005.
In the past year or so many funds used gates to delay withdrawals by investors, often arguing that this was necessary to avoid selling the fund's assets at extremely low prices under crisis conditions.
Traders Plan to Increase Option Use
US options industry commissions totaled an estimated $2.6 billion as increased volume and participation by asset managers drove brokerage commissions to new records in 2008, according to a study by TABB Group.
Trading volumes are expected to decline 17% in 2009 but rise again in 2010. Andy Nybo, senior analyst at Tabb and author of the study, says the future looks bright because “nearly 70% of the traders interviewed expect to increase their use of options as ‘normalcy' returns to the marketplace and they deploy strategies suspended amidst 2008's market volatility.”
He found that despite the growth in the options market, “traders' leading complaint continues to be liquidity,” which favors bulge-bracket dealers delivering a full suite of services. Traders are willing to use the phone if they can get a better price by talking with a dealer, but “for tight markets with sufficient size, electronic trading will provide the biggest bang for the buck especially when commissions are factored into the equation.”
TABB Group interviewed 54 traders at asset managers, hedge funds, market makers and proprietary trading firms with combined assets under management of $4.9 trillion, trading an average 15.7 million contracts monthly.
CME Introduces Forex E-Micros
CME Group plans launch a series of smaller-sized foreign exchange contracts, called Forex E-Micros, in the first quarter of this year. The new contracts will be one-tenth the size of the corresponding regular CME FX contracts, making them cost-effective for individual traders or smaller Commodity Trading Advisers.
Derek Sammann, head of FX Products at CME, says that individual traders looking to participate in the global FX market or small businesses seeking a cost-effective hedging tool for their FX risk can choose Forex E-micro futures as a versatile and accessible new instrument to manage their exposure.