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Alternative Market Briefing

Large and broad reversals are the main CTAs' enemies, says Lyxor

Tuesday, September 24, 2019

Laxman Pai, Opalesque Asia:

Timing CTAs is notoriously challenging. Monitoring their exposures provides a useful picture but has rarely been a reliable allocation method.

According to Lyxor, they enjoyed an impressive rally this year, mainly supported by their long bond positions, which fueled high CTAs returns' auto-correlations. Returns might prove less trendy going forward.

Over the last two weeks, they gave back some of their gains, hit by a notable rotation. They remain long bonds (they shaved off their U.S. positions), moderately long dollar and equities, and they reinforced their long gold vs. short energy, base metals, and soft futures.

Lyxor said that their sensitivities to thematic baskets emphasize that they are implicitly positioned for a gradual economic slowdown, persisting Chinese economic pressure, more monetary accommodation (especially in the US), and no pick-up in inflation.

Analyzing trend-following conditions has historically been a more effective approach. Large and broad reversals are the main CTAs' enemies.

"To a lesser extent, periods of poor directionality are also adverse, leading to streams of small unprofitable positions. As of today, trend-following conditions are contrasted in our view," Lyxor said in its weekly brief.

On the bright side, several aging trends has just been reset, paving the way for better market directionality once the current rotations have washed out. Witness the few assets still showing an over-s......................

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