Friday, December 2, 2016
CTA performance - On average, could not take advantage of "Trump Effect"
A large sell-offs in bonds both domestically and around the world, a strong US equity move, and a strong dollar trend that changed perceptions on currencies, did not create an environment where managed futures were able to generate positive returns. I don’t want to be accused of hindsight bias, but a review of price trends in bonds and the dollar going into the election suggested that post-election moves, while extended, were not inconsistent with longer-term trends. Still, an early review suggests that there have been some major winners in this space who will end the year with strong positive gains. Careful CTA manager selection has meant the difference between success and failure in 2016.
Granted managed futures did better than bonds by over 6%, but the ability to short this sector should have been better demonstrated in performance. The SocGen managed futures index has declined in lockstep with the bond sell-off since July. What has been disappointing is the inability of some managers to fully exploit these bond market sell-offs. Systematic managers historically have had a hard time profiting from yield increases.
At current levels, it looks as though it will be difficult for the index to show a positive gain for the year. December is usually considered a short month given the Christmas holiday. Liquidity and trading volume declines after the December Fed meeting. Given an expected rate hike, there may be more positioning after the Fed meeting, but commodity volume will slow and equity moves are usually muted. Our expectation is that profits will have to be generated before December 22.