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CTAs and Global Macro diverge

Market developments were slightly less supportive for risk takers in August as the MSCI world ended the month flat and high yield credit spreads widened. In parallel, sovereign bonds edged higher, with 10-year Treasury yields currently at a 10 month low.

On the hedge fund side, this market environment was supportive for CTAs, which outperformed despite their long equity positions. Trend followers have largely tweaked their fixed income and FX portfolios over the recent months, and the move was rewarding. Their long fixed income stance benefitted from the fall in bond yields while long EUR positions paid off as the common currency kept creeping higher versus USD.

On a negative note, Global Macro strategies underperformed, on the back of their short EURUSD positions and their long European equities bias. Event-Driven strategies also delivered negative returns in August, dragged down by special situations funds while merger arbitrage strategies stayed afloat.

Going forward, we upgrade our stance on CTAs from underweight to neutral. The trend following environment has improved and the strategy is now relying on firmer grounds with FX trends proving persistent. Finally, we maintain the overweight stance on Event-Driven. With deal spreads at a wider level, merger arbitrage now appears more attractive to us.

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Tours Société Générale
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