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CTAs Providing Negative Correlation

While barely halfway through the month, trend following strategies have been able to partially offset losses in equity markets (and most likely from other equity-related strategies). This is in contrast to how Trend Following strategies performed (on average) during the last Global Crisis (Covid). The war in Ukraine largely reinforced pre-existing inflationary tendencies and CTAs were able to profitable exploit those moves.

Halfway through March, our CTA index is up 5% which is one of the stronger monthly results, if it holds until the end of the month. This is after a large giveback when Crude Oil reversed.

As the situation in Ukraine got progressively worse, and sanctions were imposed on both sides, Commodity markets exploded higher and the front month Crude Oil contract briefly traded around $130 per barrel. Other markets such as Wheat or Nickel also provided explosive price moves.

Source: BarChart

The performance of the average CTA is in strong contrast to the performance during the short-lived Covid sell-off in 2020. The disappointing returns during that crisis, resulted in large redemptions for the Managed Futures industry. With a risk of sounding cynical, the current increasingly hostile global situation has been net positive for trend strategies.

Correlation and Beta for CTAs

On average we believe that CTAs are increasingly short equities, short bonds, but with reducing bet sizing, long the USD and Energy markets, recently switched to long gold position and with no exposure to Crypto Currencies. To us, this sounds like a portfolio that is long crisis protection.

While Crisis-Alpha has been a concept that have been debated recently, this time around, CTA do indeed fulfill their role in a portfolio.

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