Wednesday, October 21, 2020

Has 2020 been a good or bad year for trend-followers?

 


Has this been a good year for trend-following CTA's? The classic approach is to just look at the time series for an index of trend-followers. You can use the SocGen, BarclayHedge, HFR, Eurekahedge, Credit Suisse, or Nilsson Hedge to name just a few. Some are equal-weighted, while others are AUM-weighted or restrict an index to large firms. Not all firms report to all performance services so there will be some sampling error differences. 

I looked at some slightly different metrics for comparison for this year because there has been a significant amount of dispersion between managers this year. Dispersion can lead to an index being centered around zero yet there being some clear performance winners. I am not conducting an exhaustive analysis but focusing on some interesting numbers that provide a different perspective. I focused on the Nilsson Hedge database and sorted on the largest reporting trend-following CTA's. The sample includes 52 names of funds greater than $200 million. There may be multiple funds from the same manager. 


The average year to date return for 2020 is -50 bps while returns for the same period last year was 10.17 percent. The sharp swings during the early pandemic took a toll on managers. Less than 25 percent of the managers showed gains of more than 5 percent while over 70 percent showed gains above 5 percent last year. Funds over a billion dollars in AUM showed slightly lower performance (-73 bps) and there was only a one out of ten chance of exceeding 5 percent in year to date return.

Compared to historical performance, no fund has done well even with a 30 percent difference between the high and low fund. Comparing long-term average annual return plus a standard deviation for each fund shows no fund above that threshold. 45 percent of the funds were at least one standard below the average annual return. 

There is still one quarter left in the year, so performance can change especially given the uncertainty in markets, but this has not been a "crisis alpha" year. 

 

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