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Tough First Half of 2012

The first half of 2012 has been challenging for trend followers and the results of most CTA funds is in the red. The problem this year has been the lack of proper trends across asset classes and the single mindedness of the market’s risk-on / risk-off approach. There has really only been one core trend this year, which is long bond futures. What we are seeing is a huge difference in performance between those who took on the arguably very high risk of carrying massively leveraged bond positions in countries where the yield is approaching zero, and those who shied away from this risk and concentrated on other asset classes.

Those who took the full bond positions are winning this year so far but it is difficult to blame the traders who didn’t go all in with bonds. The risk reward situation in that sector is looking less and less appealing and there is a limit to how far that trend can go.

Not all funds have reported their June return numbers yet but for those who have the situation is quite clear. While May was an excellent month for trend followers, June gave most of it up. The final day of the second quarter displayed violent counter trend moves with equities rallying, dollar falling sharply and commodities jumping. This was a painful day for CTA funds for sure.

FundJuneYTD
Clarke Capital Management - Worldwide-15.64%16.90%
Heyden & Steindl GmbH - TOMAC2-5.76%4.08%
Eclipse Capital Management - Global Monetary-5.79%3.17%
Campbell & Company - Global Diversified Large-5.10%3.15%
Kaiser Trading Group - Kaiser Trading Group-2.05%2.60%
FORT LP - Fort Global Diversified-2.48%1.69%
Rabar Market Research - Diversified Program-4.38%1.32%
Following the Trend - Core Strategy-11.05%1.10%
Quality Capital Management - Global Diversified Programme-3.33%0.02%
Estlander & Partners - Alpha Trend-5.21%-0.11%
AIMhedge Management Ltd. - AIMhedge GDF Classic EUR (Institutional)-0.79%-0.32%
Quantica Capital AG - Quantica Managed Futures-2.11%-2.73%
John Locke Investments - Cyril Systematic Program-5.50%-2.90%
Superfund Group - Superfund Green L.P. Series A-9.36%-3.22%
Welton Investment Corp - GDP ProgramMaxDD-4.76%-3.91%
IKOS - The IKOS Hedge FundMaxDD-2.32%-5.07%
IKOS - IKOS Futures FundMaxDD-2.70%-6.15%
Chesapeake Capital - DiversifiedMaxDD-4.29%-9.89%
ISAM - ISAM Systematic Fund Class A (USD)-7.03%-10.17%
DUNN Capital Management - World Monetary and Agriculture Program (WMA)-13.23%-14.18%
Hyman Beck and Company - Global Portfolio-8.69%-15.08%
John W. Henry & Company - Global Analytics ProgramMaxDD-10.69%-27.96%

So should you be worried about the viability of trend following? No, not really. As difficult as this year has been so far, it is nothing new and it will not be the last time we see a tough year like this. There may be a few funds which look a little worrying at this time (John Henry, what’s going on over there..?) but for the vast majority of the established CTA funds this is just business as usual.

The largest position by far at this time is still long rates. As worrying as it seems, the rule say we hold on to them until the trend reverses and that’s what we’ll do. The secondary theme is long agricultural commodities, in a reversal from the short aggs we had on just a few weeks ago. This market turned on a dime and is now heading up again. The long dollar factor is still with us and after that exposure was decreased following a few stops recently, it is now in the process of building up again.