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Alternative Market Briefing

CTAs winning streak continues unabated bringing the year-to-date performance to +9.6% as of July 2

Tuesday, July 09, 2019

Laxman Pai, Opalesque Asia:

CTA performance keeps creeping higher as the weekly performance at the turn of the month was +1.1% according to the Lyxor CTA Peer Group, bringing the year-to-date performance to +9.6% as of July 2nd.

"Based on a benchmark with a longer track record (the SG Trend Index), we estimate that trend followers had their best first half in a decade. CTAs' best first half since 1999 was in H1-2008, up +15.2%," Lyxor said.

The channel of transmission from a weaker global economy to robust CTA performance has essentially taken place through the fixed income market.

"Based on data, we note that CTAs net long position on bonds skyrocketed to multi-year highs at the end of June and is particularly concentrated on European and U.S. bonds. Concurrently, the net long position on equities is far below levels observed in 2017 and early 2018," it said.

From this perspective, CTAs are a perfect hedge against a U.S. recession. This expansion, which started in June 2009, became the longest ever since the NBER started to date business cycles in the mid-19th Century.

"Our views suggest investors could take advantage of the recent CTA performance to take some profits and rebalance towards strategies that are positioned for a rise in bond yields such as Systematic Global Macro," it said.

CTAs extend winning streak in June; best performing strategy in H1

Fueled by the rally in equity and bond markets, CTAs outperformed in June (+2.5%).......................

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