Managed futures in October - Positive returns in a difficult environment

The leading managed futures indices both showed gains in September. The Barclay BTOP 50, gained 1.74 percent for the month while the SocGen (NewEdge) CTA index rose 1.17 percent for September. Both moved to a flat return for the year to date with the BTOP 50 down 48 bps while the SocGen index is -2 bps for the year. Performance is mixed after hitting highs of 5 percent over the first four months of the year. We like to follow both indices given there different composition of managers.
Performance has reversed with the increase in market uncertainty after the first quarter.

This positive September return was after a strong negative August. This return profile was somewhat surprising given the volatility changes in September and the rangebound behavior for many markets. A closer look at the daily performance shows that loses accumulated for the first half of the month until the FOMC announcement. It was as if there were two separate parts for the month.

To get a feel for managed futures performance, we have presented the performance for the entire third quarter. There usually is a close association of performance across a two month period as positions from the prior month are carried over to the next month. It is hard to get a full picture of the attribution for returns for the indices,  but we can look at the trend behavior over the quarter to get some indication of what were the drivers of performance. 

• Stock indices - The sharp sell-off in late August and early September saw a bounce off of the lows with the dovish announcements of the Fed, but September was still a down month and a continuation the August sell-off. Longer-term CTA's were rewarded for holding positions.
• Bond and rates - Bonds actually rallied through August and September even with a sell-off with equities in late August and a quick reversal around the FOMC announcement. Longer-term traders were rewarded by holding long positions.
• Foreign exchange - Currencies more closely matched the behavior of stock indices with September dominated by chop. For example, the Euro saw little change over the month. The yen was range bound after as strong rally in August. The delay in Fed action has placed downward pressure on the dollar, but slower global growth is putting pressure on EM currencies.
• Energy - The strong down trend in WTI crude oil was arrested in late August, but there was little follow through in September. Any trading gains in energy were focused on short natural gas positions.
• Metals - Metals have still been dominated by China economic announcements. With firming of equities and mixed economic versus policy signals, there has been more market volatility.
• Commodities - Commodities showed mixed market movement with cattle and hogs rallying but other markets following the slowdown trend. Volatility was affected by the Fed announcement. When risk-off or risk-on behavior takes holding financial markets, there is a spill-over to commodities.

While performance for managed futures is flat going into the fourth quarter, the increasing concern about economic growth will often lead to market dislocations and divergences. This type of environment should be good for managed futures if there are no attempts at market manipulation by governments.