The CTA benchmark is in negative territory for the fifth month in a row and 2013 is set to be the worst performing year for CTAs, according to recent Preqin report.
Preqin’s report, however, points out that the outlook is not entirely gloomy as there is still investor appetite for CTAs.
Preqin’s report notes the number of new entrants to the CTA industry has been declining slowly since 2011. The industry recorded 204 launches in 2011, while so far in 2013, Preqin’s hedge fund analysts could track only 104 CTA launches. The report points out if the trend continues, 2013 could well witness the lowest number of launches post-crisis.
The following graph highlights the number of CTA launches by year of inception and a proportion of all fund launches each year from 2000 to 2013 YTD:
Interestingly, Ross Ford of Preqin points out CTA as a proportion of all launches paints a different picture. According to the report, CTAs are currently witnessing one of their best years on record, in terms of the proportion of all fund launches they make up. This points to a general slowdown in the number of fund launches in the industry as a whole. The report notes CTAs currently account for 15% of all funds launched in 2013.
Jacob Veccho of Preqin notes the returns generated by CTAs and managed futures funds have done little to entice new investors in recent years. He points out the underperformance of CTAs compared to other alternative investment vehicles is replicated over various recent time periods. However, despite the general underperformance of CTAs, some investors have continued to benefit from having exposure to attractive returns during the recent years.
The following table highlights the fact that some of the sector’s more established managers have witnessed respectable growth this year:
Institutional investors’ faith in CTAs
Madeleine Stretton of Preqin observes a year-on-year increase in the number of institutional investors investing in CTAs since 2008, as evidenced in the following graph:
The report points out institutional investors’ continued faith in CTAs proved its worth in 2008 when its performance was up 23.87%, while the wider hedge fund benchmark was down -16.32%.
Madeleine Stretton of Preqin thus observes this non-correlation to other strategies and the wider hedge fund benchmark can be sufficient reason to have some exposure to CTA strategies within a portfolio.