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January ended on a brighter note than it started. Recently, there have been signs that the
oil supply glut could be addressed by both OPEC and non-OPEC countries, which has
generated some positive support for risk assets. Meanwhile, the dovish stance of the ECB
and the BoJ reassured investors that central banks are still at the helm.
Going forward, we believe that the market respite is nonetheless likely to be short-lived.
The Fed will be meeting on 15th-16th March and a second rate hike is still in the cards.
Coupled with the earnings recession in the US and China’s growth deceleration, markets
may struggle to find reasons to engage in a sustainable rally in the months ahead.
Such market environment has proved supportive for hedge funds and should continue to
do so. The Lyxor hedge fund index is down 1.3% in January, while the S&P 500 has
suffered a 8.4% drawdown (as of Jan. 26). With regards to hedge fund strategies, CTAs
outperformed in January (+3.2%) and Event Driven underperformed (-2.5%).
The performance of CTAs during the recent market meltdown is remarkable. It highlights
the fact that the power of diversification of the strategy in a portfolio remains intact. Recent
developments provide additional evidence that managed futures often outperform
traditional long-only investments and hedge fund strategies during market dislocations and
macro events. But despite such evidence over the long run, the strategy often gets a bad
press. The opposition between the man (discretionary managers) and the machine
(systematic funds) continues to be popular in the medias. However, we fear that they miss
the point. CTAs and systematic strategies have never pretended to replace discretionary
strategies.
CTAs are complementary with traditional long-only or long-short strategies in a
portfolio and provide great diversification benefits as demonstrated during recent weeks.
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