CTA performance solid following UK referendum result
CTAs, hedge funds using futures contracts, have posted a positive performance in two full days of trading after the UK referendum results according to Societe Generale's prime services division.
The unit, which provides a suite of services to hedge funds, says 90% of funds tracked by SocGen's CTA Index posted positive returns in the immediate aftermath of the UK's vote to leave the EU, when falling markets were causing concern for many investors.
The strong performance has continued into this week, with 75% of SG CTA Index constituents posting a positive performance on Monday.
As a result, the SG CTA Index has returned to positive territory, now up 2.81% year-to-date.
“CTA strategies have weathered the first two days of uncertain markets following the EU referendum results very well, benefiting from diversification across asset classes and positioning,” said James Skeggs, global head of alternative investments consulting at Societe Generale Prime Services.
Skeggs added that investors in these strategies will be feeling reassured that they have delivered non-correlated returns during this challenging period.
"In particular, short term strategies have performed well so far this year, and ongoing market movements could see these strategies well positioned to take advantage of market volatility in the coming period.”
Philippe Ferreira, senior strategist at Lyxor, said on Monday that the hedge industry tends to protect portfolios under such circumstances and initial estimates are comforting.
“CTA stand in positive territory post-Brexit in the +2-3% range for Monday. Macro managers have the potential to take advantage of such market disruptions but the range of their performances is likely to be wide (in the -2.5%/ +0.5%)."
Some macro managers were actually long equities going into the vote, he added.
"We estimate that long/short equity managers are down, but their negative performance is expected to remain in a moderate range, say -1/-2%."
Ferreira said that event-driven funds have a higher beta than other hedge fund strategies but are mainly exposed to the US market. They could be down in the -0.5/-1.5% range.
Finally, the assets traded by long/short credit could face liquidity issues and performance estimates are more hazardous. Yet, several managers cut exposure to financials ahead of the vote.
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