Managed futures managers rise for second month in a row

Date: Thursday, October 22, 2009
Author: Hedgeweek.com

Managed futures managers delivered healthy returns for September—their third positive month in 2009—as trend-following models were able to capitalize on significant market trends, according to a report by Lipper Tass.

The sub-strategy posted a 1.41 per cent return on average for the month, minus 0.44 per cent since the beginning of the year, and positive 7.29 per cent for the rolling 12-month window in US-dollar terms.

The degree of dispersion among individual fund returns declined from the previous month’s reading. A 28.17-percentage-point monthly performance difference in September divided the top and bottom performers of the actively reporting managers tracked by Lipper.

September reversed August’s reading. Managers with assets in excess of USD45m returned a better average performance at 2.02 per cent month on month—61 basis points above the average reading for the strategy. Large managed futures managers returned a negative 0.27 per cent for the year to date at the end of September and a positive 8.60 per cent for the rolling 12-month window.

Managers benefited from long equity positions as global stock markets consolidated their gains since mid-March, climbing 4.02 per cent at the end of September, according to the MSCI World TR Index. The US equity market surged 3.73 per cent as reflected in the S&P 500 TR Index reading. A subdued volatility pattern also favoured managed futures managers as the CBOE VIX Index declined 1.54 per cent from 26.01 in August to 25.61 in September.

Benefiting from a weak US dollar, rising commodity prices, and steady capital inflows, emerging markets—especially those of BRIC members—performed significantly better than developed markets, with Latin America (+10.86 per cent) outperforming all emerging regions. In particular, the S&P Global BMI Emerging Markets Index surged 8.55 per cent month on month, led by Russia (+17.30 per cent) and Brazil (+14.50 per cent).

Developed markets posted a positive return of 4.21 per cent at the end of the month, with Korea (+11.65 per cent), Australia (+11.12 per cent), and Norway (+10.62 per cent) posting double-digit returns.

Funds overweighted in Brazil equities gained significantly as Brazil's Bovespa ended the month up 8.90 per cent, following a decision by Moody's Investors Service to raise Brazil’s sovereign credit rating to Baa3—an investment-grade rating.

Over the past 21 years the US dollar has seen a fairly negative seasonal trend through the month of September. In September 2009 the greenback was once more under pressure against six major currencies, declining 1.94 per cent month on month in September and 5.54 per cent so far this year, according to the ICE Futures USD Index. Many managers gained from long currency trades in the yen and pound sterling on top of short US dollar exposure. Rosy expectations that the US economy was recovering—triggered by data showing the US economy contracted in the second quarter more slowly than anticipated—and quarter-end flows related to hedging ratios of foreign
portfolios dampened safe-haven demand for the US dollar.

Eroding confidence in the US dollar and growing optimism on economic recovery lifted prices of commodities, with the Reuters/Jefferies CRB Index rising 2.25 per cent for September. Natural gas, lean hogs, and gold regained ground, posting returns of 20.85 per cent, 7.24 per cent, and 5.86 per cent, respectively, while copper (-4.95 per cent) dropped substantially as inventories rose.

Gold hit a record near USD1,070 per ounce at the end of the month, driven by the slumping US dollar and crude oil’s rally. Oil rose above USD75 a barrel as the weakening dollar made oil—which is priced in the US currency—cheaper for holders of other currencies. Furthermore, the rising oil price was bolstered by US government data showing a bigger-than-expected drop in US crude inventories and the International Energy Agency’s forecast that global oil demand would rise more than had been foreseen for both 2009 and 2010.

Elsewhere, copper prices edged down at the end of the month as demand concerns mounted: China’s refined copper imports slowed—to 219,731 tonnes in August from 292,226 tonnes in July—after the record imports in the first half of the year.