Agricultural and discretionary funds strong at mid-year
Despite an especially weak second quarter highlighted by consecutive down months in May and June, a strong rebound in July pushed overall managed futures returns close to breakeven for the year, just as a new wave of disruptions were sweeping equity markets around the globe.
The BarclayHedge CTA Index (www.barclayhedge.com), which tracks the performance of more than 550 managed futures investment programs, was down 1.51 percent at the end of the second quarter, but a strong 1.32-percent gain in July left the index just 0.64 percent in the red on the year (Figure 1). However, the largest commodity trading advisors (CTAs) appeared to be lagging the overall market: The Barclay BTOP50 Index, which reflects the performance of the largest 28 investable managed futures programs in the BarclayHedge CTA universe, was down a little more than 2 percent on the year through July.
Meanwhile, by mid-August most major U.S. and European equity indices had dropped into negative territory for the year. A spate of weak economic releases (in the U.S. and abroad), negative sentiment emanating from Washington’s poor handling of the debt-ceiling issue, and Standard & Poor’s Aug. 5 downgrade of U.S. debt conspired to tank U.S. stocks in the first two weeks of the month. The S&P 500 Index (SPX), which dropped more than 18 percent during the worst two weeks of the sell-off, was down more than 6 percent on the year as of Aug. 12.
The second quarter of the year saw a continuation of some recent industry performance trends, along with a few wrinkles in asset flows and returns among specific managed futures sub-groups.
STRONGEST PERFORMERS
Table 1 shows the performance of BarclayHedge’s six CTA sub-indices through July. Following through on their bullish performance in recent quarters, agricultural fund managers remained the strongest sector in 2011 through July, returning more than 3 percent, followed by discretionary traders at just above 2 percent. Discretionary fund manager Paul Kim of Aventis Asset Management, whose Diversified Commodity Fund focuses on physical commodities (with an emphasis on agricultural futures), is profiled on p. 9. His fund, which relies heavily on spread-trading strategies, was up approximately 11 percent on the year through July.
The only two sub-indices in the red for the year were the Systematic Traders Index and the Diversified Traders Index, down 1.57 percent and 1.7 percent, respectively. Their returns marked something of a departure from Q1 and early Q2, when they represented two of the top three (along with the Ag index) performers.
Asset flows into managed futures slowed somewhat in the second quarter of the year. Total assets under management (AUM) topped $299 billion by the end of June, a new record high and the ninth consecutive quarterly gain, but an increase of only 2.7 percent from the previous quarter — far off the roughly 9-percent average quarterly increase over the previous three quarters.
Interestingly, the top-returning managed futures sectors in recent months, agricultural and discretionary, were the only two that experienced net outflows in Q2. Agricultural managers saw a net outflow of -22.03 percent from Q1 to Q2, after a net inflow of 6.63 percent from Q4 to Q1. The switch in the discretionary trading group was even more dramatic: an 81.34 percent inflow from Q4 to Q1 — by far the largest increase of any group -— was followed by a 0.4-percent outflow from Q1 to Q2.
COMMODITY PRICE ACTION
With two important exceptions, commodity prices mostly moved sideways in the second quarter and the first portion of the third quarter. The overall rally in the Goldman Sachs Enhanced Commodity Index peaked in April, and broke decisively in May (led lower by the crash in silver prices and the downturn in crude oil). Prices subsequently moved mostly sideways until early August, when the global equity market sell-off triggered a bout of risk aversion and position liquidation across asset classes.
