CTAs in Hot Demand in 2016

Stockholm (HedgeNordic) – CTAs have experienced notable increases in their numbers of inflows and active investors in the first half of 2016, according to the latest report from Preqin, a leading source of data and intelligence for the alternative assets industry. “CTAs have seen solid returns in the opening months of 2016,” says Amy Benstedt, Head of Hedge Fund Products at Preqin. “If these gains persist, we may see yet further inflows from investors.”

The boom is ascribed to CTAs meeting or exceeding performance expectations in the first two quarters of 2016, and a concurrent increasing attractiveness across the alternative investments industry. This comes on the heels of an emerging pattern: 1,067 institutional investors actively invested in CTAs in 2015, surpassing the 2014 figure of 1,017, with 69% of investors interviewed by Preqin reporting CTA portfolios had met performance expectations for 2015. This follows four quarters of net inflows of capital experienced by CTAs since the beginning of 2015, with net asset flows of USD38b in new investor capital.

Consequently, while CTAs returned -0.08% in 2015, reflecting a difficult performance year, 2016 began with a bang, with funds gaining 1.52% in the first quarter alone. Combined with investor inflows, this put total AUM for CTAs at USD241b at the end of Q1, by comparison to USD204b at the beginning of 2015. CTAs experienced combined net inflows of USD13.7b in Q1, the highest of any leading strategy, marking a 7.8% growth in AUM across the quarter, and putting combined CTA assets above those held by credit strategies funds.

“CTAs play an important role in a number of institutional investors’ portfolios,” says Ms Benstedt. “These vehicles, operating trading strategies across a wide range of commodity and financial markets, offer the possibility of returns with low correlation to other financial markets and can smooth returns to investor portfolios. With recent widespread turbulence, it is perhaps unsurprising that increasing numbers of investors have been attracted to CTAs’ potential for low correlation to other investments.”

In part due to this, CTAs have seen the highest level of inflows across all leading hedge strategies in 2016 so far. The strategy has retained a low correlation of less than 0.3 to both equity markets and other hedge fund strategies since January 2013. Since Q2 2014, correlation between CTAs and the S&P GSCI Total Return Index has been increasingly negative, reaching -0.42% in April 2016. While CTAs have seen large net inflows of capital overall, however, only 40% of CTA fund managers saw net inflows in Q1 2016, while 48% recorded net outflows.

Of CTA sub-strategies, option-writing strategies have returned 8.67% since the beginning of 2015. This marked the strongest cumulative performance of any CTA sub-strategy, followed by Counter-Trend strategy funds at 5.82%, Macro funds at 3.39%, and Pattern Recognition funds at 3.16%. By contrast, new CTA launches peaked in 2013, with 152 funds launched that year. The rate of launches has declined since then, with just 73 new fund launches in 2015 and 12 so far in 2016, representing just 6% of all hedge fund inceptions.

29% of respondents to Preqin’s questionnaire intended to increase their exposure to CTAs in 2016, versus 5% planning to decrease it.

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About Author

Glenn W. Leaper, Associate Editor and Political Risk Analyst with Nordic Business Media AB, completed his Ph.D. in Politics and Critical Theory from Royal Holloway, University of London in 2015. He is involved with a number of initiatives, including political research, communications consulting (speechwriting), journalism and writing his post-doctoral book. Glenn has an international background spanning the UK, France, Austria, Spain, Belgium and his native Denmark. He holds an MA in English and a BA in International Relations.

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