Fast-moving CTA engine proves vulnerable to short-term volatility
By Pete Gallo
Managed futures are the best-performing hedge fund strategy this year, thanks to runaway physical commodity and energy prices. Yet, as the month of April demonstrated, this year's racy commodity trading advisory machine is vulnerable for two reasons. Shorter-term market corrections are inevitable. And other than taking cash off the table, trend-following futures funds inherently lack an effective way to hedge their bets.
In April, interest-rate volatility caused returns to buckle for many players trading financial futures, leaving the Absolute Return CTA Index down 0.25% for the month. Still, the index has gained 6.39% for the year, handily beating the benchmark Absolute Return Composite, whose median gain is 0.05%.
"I expect there will be more blips like this ahead, but the fundamentals remain good for futures managers. No one is predicting oil will see a sustained drop...