CTA Funds Are Back on Track After a Market-Beating October

  • Trends in equities, European bonds lift cross-asset quants
  • Strong October performance welcome after bad summer for CTAs

It was a good month at Florin Court Capital LLP.

With a 4 percent gain in October, the London-based quantitative hedge fund’s returns were double that of the MSCI World Equity Index. It also beat its quant peers, whose returns ranged between 0.2 percent to 1 percent for the same period, data from Credit Suisse Group AG’s prime services platform show.

Florin Court occupies a category of quant -- Commodity Trading Advisers -- that stood out from an otherwise sleepy systematic hedge-fund universe last month. CTAs, the majority of which bet on price trends using futures contracts across asset classes, surged on the heels of strong gains in oil and record highs in global equities.

The 20 largest CTAs open to new investments rose an average 4.4 percent in October, the biggest monthly gain in 16 months, according to a basket compiled by Societe Generale AG. Other quantitative funds, specifically equity market-neutral ones, stumbled as they limited their exposure to momentum in stocks.

“Trends have been strong first and foremost in equity indices,” said Doug Greenig, founder of Florin Court. “The drivers behind this have been good global growth with few signs of accelerating inflation in key developed economies, relatively dovish central banks, and some country-specific and region-specific stories including U.S. tax reform and strength in Asian and European economies.”

It hasn’t been the easiest year for the CTA cohort. In July, they faced their worst losses in a decade, as hawkish signals from central banks punished stocks and bonds alike. Meanwhile, low volatility and changing market drivers whipsawed returns. Already considered one of the more turbulent strategies, returns have alternated between gains and losses for the past four quarters, the longest stretch in three years.

Given this volatility, CTAs have struggled to secure more client money. Assets more than tripled in the decade through 2015, but the amount under management at systematic managed futures funds -- the broader category CTAs fall under -- has dropped to $275 billion from $278 billion over the past year, according to a BarclayHedge database.

Still, thanks to October’s reversal in fortunes, CTAs tracked by Societe Generale have recouped this year’s losses. So far in 2017, they are up 2.6 percent, on pace for their best year since 2015.

For the average CTA, bullish bets on equity, energy and European bonds have paid off, which “more than offset losses in short U.S. dollar and long gold positions,” Jean-Baptiste Berthon, a senior cross-asset strategist at Lyxor Asset Management, wrote in a Monday note. “CTAs confirmed their recovery,” he said.

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