Key Takeaways
- • Commodity trading advisers (CTAs) have raised equity exposure to their highest level since before the pandemic, according to Deutsche Bank data cited by the Financial Times.
- • CTAs managing hundreds of billions of dollars now hold net long futures positions on the S&P 500, Euro Stoxx 50, FTSE 100, Nikkei 225 and other indices.
- • Société Générale's CTA index, tracking 20 major funds including those run by Man Group, Lynx Asset Management and Pimco, gained almost 20% in 2022 but is down 2.2% year to date in 2023.
- • The shift follows falling volatility and hopes that interest rate increases are nearing an end, which has drawn trend-followers back into equities after missing the 2023 rally.
Summary
Trend-following hedge funds are moving back into global equities after largely missing this year's stock market rally, according to a report by the Financial Times. The shift is attributed to falling volatility and growing expectations that central banks' interest rate increases are coming to an end.
Data from Deutsche Bank, cited in the report, shows that commodity trading advisers (CTAs), hedge funds that use pattern-detecting algorithms and statistical models to direct trading across markets, have increased their equity exposure in recent weeks to the highest level since before the pandemic. According to Deutsche, CTAs managing hundreds of billions of dollars in assets now hold net long futures positions on the S&P 500, Euro Stoxx 50, FTSE 100 and Nikkei 225, among other indices.
The move comes after a strong period for the quantitative investment industry. According to data from Refinitiv, Société Générale's CTA index, which measures the performance of 20 major funds including those managed by Man Group, Lynx Asset Management and Pimco, gained almost 20% last year as equity markets slumped. The industry recorded its best annual returns in more than 20 years in 2022, supported by a broad sell-off in stock and fixed income markets. However, the same index is down 2.2% so far this year, as the funds largely missed the unexpected gains in stock markets.
The repositioning suggests trend-following managers are chasing equity performance after a difficult start to 2023, with their exposure now rebuilt across major developed-market benchmarks.
Data from Deutsche Bank, cited in the report, shows that commodity trading advisers (CTAs), hedge funds that use pattern-detecting algorithms and statistical models to direct trading across markets, have increased their equity exposure in recent weeks to the highest level since before the pandemic. According to Deutsche, CTAs managing hundreds of billions of dollars in assets now hold net long futures positions on the S&P 500, Euro Stoxx 50, FTSE 100 and Nikkei 225, among other indices.
The move comes after a strong period for the quantitative investment industry. According to data from Refinitiv, Société Générale's CTA index, which measures the performance of 20 major funds including those managed by Man Group, Lynx Asset Management and Pimco, gained almost 20% last year as equity markets slumped. The industry recorded its best annual returns in more than 20 years in 2022, supported by a broad sell-off in stock and fixed income markets. However, the same index is down 2.2% so far this year, as the funds largely missed the unexpected gains in stock markets.
The repositioning suggests trend-following managers are chasing equity performance after a difficult start to 2023, with their exposure now rebuilt across major developed-market benchmarks.
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