“The violent swings in the global rates markets took their toll on many discretionary and systematic (CTAs) managers," said Neumann, adding portfolio managers on average cut risk exposure by 50% following the selloff.Īmong trend followers, which also profited by betting on higher rates last year, the Tactical Trend fund of the $18 billion Graham Capital Management lost about 10% for the month through Friday, said people familiar with the firm. The blowup in banks caused investors to flee to the safety of bonds, sending yields down at a rate not recorded since the 2008 financial crisis. Jim Neumann, chief investment officer of alternatives advisory firm Sussex Partners, said many funds were caught off guard in short positions in sovereign debt markets. In some cases, smaller funds were nimbler than their larger counterparts, which enabled them to adapt quickly. Those who could do so quickly outperformed managers who were set in their ways. Hedge fund managers were forced to adjust their playbook. and quickly grew tentacles in Europe, altered the risk/ return profiles of virtually all major asset classes. The banking crisis, which began in the U.S. It was only in the second half that some measure of supply stability began to appear, resulting in market volatility that trapped some trend-followers on the wrong side.ĭespite those late price swings, the HFRI 500 Index, which tracks commodities and runs under the Hedge Fund Research Intelligence banner, broadly outperformed the equity and fixed-income markets and especially technology stocks - by 3,000 basis points, the widest margin since the index's inception.īut this year brought a completely different challenge, one that few CTAs could have anticipated. Then, most commodities were one-way trades - going higher and higher - for most of the year (or at least six to nine months) as the Russian invasion of Ukraine upended supply of almost every raw material from oil to wheat and shook up the global economy. In 2022, the best performing hedge fund strategies were macro, including the sub-strategies of fundamental commodity, discretionary, and quantitative, trend-following CTAs or Commodity Trading Advisors.Īrguably, last year was an easier one for CTAs. Gold had an unprecedented 9% rally for two quarters in a row, thanks to a banking crisis, which almost left oil too with a double-digit quarterly loss that those long crude managed to slash in the final week of March. Natural gas had its worst plunge in a three-month stretch due to unseasonably warm winter. Depending which side of the trade they were on, the world’s best-known hedge funds were either on a roll or having some of their worst luck ever. In the end, the first quarter of 2023 came down to Mother Nature and several bank failures.
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