Preqin’s Hedge Fund Analyst database reveals that CTAs posted negative returns for the fifth month in a row in September, bringing the strategy’s year-to-date performance to -2.45%. Over the last 12 months, CTAs have produced average net returns of -3.77%.

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  • CTAs continue to represent an important hedging tool for investors due to their lack of correlation with other markets; over 990 investors tracked by Preqin’s Hedge Fund Investor Profiles database have previously allocated to, or stated a preference for investing in CTAs.
  • However, there has been a reduction in appetite for new CTA investments. In Q3 2013, 9% of investors planning new hedge fund investments over the next 12 months were considering CTA investments, compared 18% in Q4 2012.
  • The three-year volatility of CTAs from October 2010 to September 2013 was between 6% and 8%, while for the S&P 500 it was 12% to 22%.
  • 31% of public pension funds and 25% of insurance companies that invest in hedge funds have a preference for CTAs, with these investors typically taking a long-term approach to investing in hedge funds, and viewing CTAs as offering good downside protection.
  • 38% of hedge fund investors based in Europe and 36% based in Asia-Pacific invest in CTAs, while 22% of investors in North America have a preference for the strategy.
  • While the number of CTA launches is at its lowest level since 2006, with 104 CTAs launches so far in 2013 compared to 164 in 2012, CTA launches as a proportion of all hedge fund launches is at its highest level since 2004 (15%) demonstrating a slowdown in fund launches across the industry.
  • 84% of CTAs launched in 2013 use a systematic trading methodology, down from 92% of CTAs that launched in 2011, with more CTAs now using a discretionary trading model.

Graeme Terry, associate commercial manager, Hedge Funds – Preqin, said: "The performance of CTAs continues to be disappointing, with negative returns in September representing the fifth month in a row that CTA performance has been in the red, and year-to-date returns are down on the wider hedge fund benchmark. Investor appetite for new CTA investments has dropped, with just 9% of investors looking to make new investments over the next 12 months considering CTAs. However, it is the lack of correlation with equities that represents a significant motivator for CTA investors, with investors able to mitigate the risk of serious downturns by participating in CTA vehicles. Therefore, over the longer term, many institutional investors that take a long-term approach to their investments are likely to continue to allocate to CTAs."

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