According to Preqin’s latest performance benchmarks, CTA hedge funds have had their strongest monthly performance in over three years, posting returns not seen since April 2011.

This performance has taken the benchmark to its highest August year-to-date figure since August 2010, a year in which the benchmark ended up posting 15% returns. CTA funds have had a difficult few years, struggling to generate annual returns in excess of 2% since the start of 2011. This monthly return in August, however, marks the fifth consecutive month in the black for the CTA benchmark.

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Key CTA Findings:

  • The CTA benchmark has now had nine months in the black out of the last 12 months, with 2014 YTD returns at 4.64%
  • 2014 YTD returns for CTAs already significantly exceeds the benchmark’s year-end returns in 2013 (0.87%), 2012 (2.14%), and 2011 (1.84%).
  • Discretionary CTAs were only just in positive territory in August, adding 0.26% over the month.
  • In contrast systematic CTAs added net returns of 3.84% taking the strategy’s YTD returns to 5.21%.

Other Key Findings:

  • The Hedge Funds (All Strategies & Regions) benchmark is back in the black following July’s losses of -0.07%, making gains of 1.30% in August. This takes the hedge fund benchmark to 4.97% for the year-to-date.
  • Emerging market-focused funds continue to extend their positive performance steak, posting returns of 1.75% and marking a seven month period without a loss.
  • Activist hedge funds have the strongest performance YTD, with the benchmark posting 7.40% returns for the year through August.

Comment:

After a few years of underwhelming performance, a return to form in 2014 for CTAs will be welcomed by both managers of the strategy and its investors alike. Correlation of assets and market intervention by policy makers have affected CTA’s ability to successfully detect and profit from market trends in recent years; however since the tail end of 2013, there has been a noticeable improvement in the strategy’s absolute returns as well as the benchmark’s consistency of its returns.

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Since the start of Q4 2013 the CTA benchmark has been in the red just twice – in January and March – and the benchmark has had its best start to the year since 2010. Although equity-based strategies, such as those pursuing a long/short strategy, are still beating the Preqin CTA benchmark, the gap between the returns of each have narrowed to less than half a percentage point year-to-date, and the volatility of returns in these equity strategies has increased. As a result we may see investors paying close attention to CTAs in the final part of 2014 in order to provide some downside protection and to reduce correlation to equity markets."
Amy Bensted, Head of Hedge Fund Product.