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Good Month for CTAs and Macro

Managed futures had strong returns in September, moving indexes to positive territory after losses in the first half of the year. Market conditions also favored global macro.

Several reports predict that the favorable conditions for futures trading strategies will continue. Scandinavian financial group SEB has a positive view of commodity trading advisors and global macro. "CTA strategies have had a little tougher time this year compared to their successful 2008, but as markets stabilize further and trends become established, they will increasingly come into play," according to SEB.

While databases contain different groups of managers and may use different methods, in general CTAs did better in recent months and some CTA indexes turned flat-to-positive year-to-date (table below).

"September marks the third month of positive performance for the strategy, which derived the majority of its gains from equities, long-term bonds, currencies and short-term interest rates, supported by many governments' continued stimulus plan implementations," Credit Suisse/Tremont analysts wrote regarding managed futures.

The gains were across the board. All eight components of the Barclay managed futures index were in the black in September. Diversified traders were up 1.13%, systematic traders 0.87%, currency traders 0.6%, and financial and metals traders 0.26%.

TABLE
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                                                                                 September                 YTD as of September
Futures
            Credit Suisse/Tremont                                     2.97%                             -4.2%
            Barclay CTA Index                                         0.96%                             0.08%
            Greenwich                                                       1.8%                               0.2%

Global Macro
            Credit Suisse/Tremont                                     2.77%                              9.09%
            Barclay Hedge                                                2.77%                              6.34%
            Greenwich                                                      1.6%                                     9%
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Credit Suisse/Tremont says trend followers in particular had strong performance in September. However, energy detracted from returns as crude oil ended the month slightly down after making volatile moves through the month.

Most high-frequency trading funds also made money.-some short-term reversals caused losses in this style, especially in fixed income markets in mid month, but these were offset by gains in trades on the long-side.

Macro Recovery

Morningstar offered another perspective. The fund data provider says the Morningstar Global Non-Trend Hedge Fund Index - which includes funds in global macro - fully recovered from 2008 losses as of September. The recovery happened despite macro lagging the performance of other strategies this year.

By comparison, hedge funds overall have not yet returned to their October 2007 peaks. The Morningstar 1000 Hedge Fund Index declined 25% through February 2009 and has recovered 20% in the last seven months, with 11.4% to go.

The appreciation of the Australian dollar and the Euro versus the U.S. Dollar, as well as spikes in silver and gold prices helped the global macro index rise 1.9% in September, says Morningstar.

SEB chose macro as one of the most promising investment areas. "As for global macro strategies, the skill of the manager determines the return to an even greater degree. Properly handled, they offer fine opportunities to generate good returns in relation to risk," says the SEB report.

Global macro returns year-to-date are very widely dispersed, suggesting that managers have been pursuing divergent investment themes. From January through September 2009, the top global macro fund in the Credit Suisse/Tremont database raked in 111%, while the worst-performer lost 100%. Managed futures had significantly narrower dispersion among funds, with the best performer at 34.5% and the worst at negative 29.4%.

Credit Suisse/Tremont says quantitative macro managers had a similar turnaround as managed futures and some of the sources of profits were similar, particularly in currency trading, where many bet on the Japanese yen strengthening against the US dollar and the euro and also went long the Australian dollar and short the US dollar.

"Despite further improvement in economic indicators, the potential outcomes following stimulus and the restocking cycles remain wide, which continues to provide a number of opportunities for global macro managers," according to the report.

Macro funds retain high levels of cash by past standards. Hence managers are in position to take advantage of long and short opportunities in a range of markets, from commodities and FX to equities and interest rates.