Just the FAQs
CTAS ARE BACK…WHAT HAS CHANGED?
Through the end of May 2022, CTAs are off to their best start to a calendar year since 1995 using the Barclay CTA Index as a proxy, exceeding early returns from 2008. Consequently, both those who have recently benefited from a trend-following allocation and others considering new investments are now asking the same question: "What has changed?"
Having said all of this, attempting to forecast the future path of inflation, central bank policy or geopolitical conflict when evaluating a CTA investment going forward is perhaps not the ideal approach. While the strategy has done well as inflation has climbed, it is not preordained that it will do poorly should numbers stabilize or even fall. Heightened volatility and relatively large changes in asset prices have created a ripe environment for most managers, and softer inflation numbers may not result in a reversion to the prior regime.
Perhaps of equal importance, even if the regime were to revert, markets would likely not immediately correct. It takes time for macroeconomic events to evolve and even more time for investors to process the implications on asset prices. Given the significant moves in commodities, interest rates, foreign exchange and equities, the trends that would likely develop as prices moved back to their prior equilibrium could be exceptionally profitable. For example, increasing energy demand, tight inventories and supply disruptions have combined to push crude oil prices over US $100 a barrel for the first time since 2014. Imagine the potential gains that could be generated with short positions should prices fall back to $10 a barrel as they were in the depth of the COVID crisis only two years ago. Similarly, US 10-year Treasury yields have hovered around 3% in recent months after touching a historic low of 52 basis points in 2020. Until recently, there was a perception that trend-followers could not make money in a rising rate environment as there had not been a sustained period when rate expectations were climbing. However, trend managers have a long history of capturing gains in extended bond bull markets.
In conclusion, the environment for trend-following has been exceptionally attractive in early 2022. Relatively large moves in financial and commodity futures have enabled many CTAs to deliver on their promise of differentiated, positive returns during a more challenging environment for equities and bonds. Whether these moves will continue, reverse or stagnate at their current equilibrium will be instrumental in determining CTA performance going forward. While it may be impossible to say what happens next, the opportunities remain strong and our optimism remains high.
Past performance is not necessarily indicative of future results. Systematic futures trading involves substantial risk of loss. Descriptions of funds, securities or financial instruments in this document will have been included only in an attempt to provide a more accurate picture of the services offered by Lynx Asset Management AB. This document is not a solicitation or a recommendation to invest in any fund, security or financial instrument. A person considering an investment in a Lynx vehicle or in any other fund or security should carefully read the relevant offering documentation for such a fund or security. Pursuant to an exemption from the U.S. Commodity Futures Trading Commission in connection with accounts of qualified eligible persons, this brochure or account document is not required to be, and has not been, filed with the U.S. Commodity Futures Trading Commission. The U.S. Commodity Futures Trading Commission has not passed upon the merits of participating in a trading program or upon the adequacy or accuracy of commodity trading advisor disclosure. Consequently, the U.S. Commodity Futures Trading Commission has not reviewed or approved this trading program or this brochure or account document.