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Alternative Market Briefing

CTAs underperformed in June as risk assets kept creeping higher

Tuesday, July 07, 2020

Laxman Pai, Opalesque Asia:

Lyxor Peer Groups suggest hedge fund performance was up +0.6% in June, with CTAs underperforming (-1%) and Directional L/S Equity, L/S Credit and Special Situation strategies outperforming (+1.2% to +1.5%).

During the last weeks of June, market concerns over renewed Covid-19 infections in the U.S. led to some profit-taking in equities, which fueled CTAs, up +0.4%.

It is interesting to note that despite the market rebound in Q2 2020, the exposure of the strategy to equities remains very limited, said the report.

Considering the defensive properties of CTAs during the selloff in Q1 2020 (-0.9%), their underperformance in Q2 2020 (-2.7%) is rather consistent.

Long USD and short energy positions detracted from performance while their positioning on equities and fixed income delivered mixed outcomes. Overall, trend following conditions was less supportive in Q2 2020 on the back of momentum reversals in equities, commodities, and FX markets, but CTAs managed to absorb such headwinds relatively well. "We note that they are now rather underinvested," Lyxor stated.

Although they added to equities, they provide adequate diversification against downside risks. Also, they are unlikely to struggle if risk assets continue to rebound.

In the past decade, CTAs experienced difficulties when central banks were on a bond-buying spree. The compression of risk premia across asset classes caused regular bouts of volatility, which, at times, were c......................

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