Since the beginning of 2009, the research analysts at BHA have found that the three most popular hedge fund strategies have been long/short equity, global macro, and CTA/managed futures. The strong interest in long/short equity and global macro strategies is not surprising. These are original, core hedge fund strategies. Many investors have reverted back to these with the hope that markets have stabilized and that these traditional strategies, which focus on the stock markets and inefficiencies in the global economy, will be wise investments in the long term. An example of this sentiment was articulated by the managing director of a wealth advisory firm located in Boca Raton, Florida. He explained that after experiencing the market volatility and chaos of the last 18 months, both he and his clients felt more comfortable investing in old-school and talented stock-pickers that run long/short equity portfolios. He further explained that traditional long/short equity strategies are easier to understand, and they make more sense now that the stock market has seemed to calm and bottom out.
CTA/managed futures strategies usually involve a higher degree of leverage than most other strategies and are susceptible to greater volatility. In many instances, these funds entail black box or quantitative strategies that deter many investors because of their complexity and untraditional approaches. After the worldwide economic turmoil of the past two years, it would seem unlikely that a significant portion of hedge fund investors would still have an appetite for this strategy. However, data compiled by BHA research analysts tell a different story. Year to date, there have been 708 investors that have articulated an interest in CTA/managed futures funds, 331 of which have voiced an interest during the past four months. This is the third most popular strategy among hedge fund investors. The greatest interest has been in long/short equity managers (1,137 mandates) followed by global macro managers (875 mandates).
When providing mandate information to BHA analysts, many investors specify their manager requirements. A common criterion has been that prospective managers use a quantitative approach. Year to date, 250 investor mandates have stated this requirement.
The driver behind the rise in CTA/managed futures interest is the performance of the HFN CTA/Managed Futures Index. In 2008, it outpaced the rest of the hedge fund industry. Many talented commodity and futures traders profited from the pricing extremes in these markets. For example, oil reached an all time high of $147 a barrel in July of 2008 before falling to $32 a barrel the following December. During such times, numerous CTA/managed futures managers employed systematic and strong trend-following strategies, and took full advantage of the markets. These managers also provided better liquidity terms compared with the rest of the industry because of the high-frequency, short-term trading involved. CTA/managed futures were one of a select few hedge fund classifications that produced positive average performance in 2008. The HFN CTA/Managed Futures Index outperformed the broad industry index by 25 percent. (See: Strategy Focus Report: CTA/managed futures by Peter Laurelli http://www.hedgefund.net/publicnews/default.aspx?story=10480).
