CTA Outlook for the Year Ahead – April 2016

by Matt Humphries

  • 18 Apr 2016
  • HF

2015 began positively for Commodity Trading Advisors (CTAs), with the Preqin All-Strategies CTA benchmark returned 4.24% in the first quarter. However, as the year progressed, oil price volatility and the Chinese economic slowdown – among other events – created challenging global conditions and CTAs finished the year down by -0.10%. However, according to Preqin’s Hedge Fund Online, which tracks 1,100 investors currently investing in CTAs and shows the Preqin All-Strategies CTA benchmark up 2.75% at the end of February, the fortunes of CTAs may be changing.

As reported in the 2016 Preqin Global Hedge Fund Report, managed futures / CTA strategies are the second most prevalent strategy that fund managers are planning to launch in 2016, with 14% of all fund managers surveyed in November 2015 indicating plans to launch a managed futures / CTA vehicle. The first quarter of 2016 has seen nine CTA launches, including Duet Asset Management’s UCITS vehicle Duet Managed Futures Fund through their new UCITS platform.

Of the CTA investors surveyed for the 2016 Preqin Global Hedge Fund Report in November 2015, 69% stated that returns seen in 2015 were of the levels expected and just over half (54%) expected to increase their CTA exposure in the next twelve months. In a separate Preqin survey covering all hedge fund investors, 29% planned to increase their exposure to CTAs, including 2% of respondents that had not invested in the strategy in 2015. Whether for diversification or absolute return purposes, more investors look set to add CTAs to their portfolios in 2016.

Of the 20 top performing CTAs in 2016 (as at the end of February), three-quarters invest in global markets, compared with just 44% of the worst performing CTAs. A primary North America-focus is more prevalent among the preferences of the worst performing rather than the top performing CTAs, with 50% and 21% of these groups of CTAs solely targeting this region, respectively. As shown in the chart above, the most significant differences in the commodities traded by the top and worst performing funds are found in their exposure to currencies and stocks. The top performing CTAs look to invest in a greater range of commodities, while stock indices are more common among the worst performing funds, with 40% of these CTAs preferring to solely invest in stock indices.

Overall, CTAs have started 2016 well, generating positive returns for investors in both January and February, as funds with less exposure to the underperforming North American stock markets outperform in the early months of 2016. With this improved performance and investors still committed to CTAs and the advantages they can offer, 2016 could be a positive year for CTAs.

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