Commodities Trading Advisers come into focus.
10/07/16
LONDON--For one type of computer-driven fund, amassing giant positions in currencies, bonds, stocks and other assets is becoming the norm.
Commodity trading advisers, or CTAs are computer-driven funds that try to make money betting on market trends and patterns.
Many of these funds have been betting against sterling and probably profited handsomely from Friday's chaotic trading and fall in the currency. French bank Société Générale SA's Trend Indicator, which simulates the bets that CTAs may place, has been positioned for the pound to fall since just after the U.K.'s vote in June to leave the European Union .
But some worry about risks associated with such funds and their positions.
CTAs' exposure to fixed income is "impossibly high and dangerous," said Robin Carpenter , head of New Hampshire - based data group Carpenter Analytical Services. He calculates that CTAs' exposure to fixed income is around its highest level since the year 2000.
"When CTAs get to selling, it will be quite a show," he said. CTAs' exposure to stocks, meanwhile, is in the top 20% over the past 16 years.
CTAs--just one type of computer-driven trader--run approximately $300 billion in assets, but the way they put on market positions means their market "footprint" may be twice that or more.
"We're still avoiding CTAs," said Robert Duggan , partner at SkyBridge Capital , which invests in hedge funds and manages $12.3 billion in assets.
"Their systems are comfortable buying fixed income at yields of zero or negative, when most discretionary investors would avoid buying at those levels."
Signs are emerging that the performance of CTAs is getting more volatile. Many were hard hit by recent market moves, including a selloff in both stocks and bonds early in September.
Among those to lose out was Stockholm -based Lynx Asset Management, which runs around $6.3 billion in its Lynx strategy. Its Lynx 1.5 fund lost around 10% in August and early September, according to performance numbers sent to investors and reviewed by The Wall Street Journal , before recovering in late September. A spokesman for Lynx declined to comment on performance.
And Systematica Investments, which was founded by Brazilian financier Leda Braga and which runs $10.2 billion in assets, also saw its flagship fund lose around 10% in August and early September. A spokeswoman for Systematica declined to comment.
CTA performance was at its most volatile during the credit crisis, according to analysis by Chicago -based data group Hedge Fund Research . It last reached a significantly high level of volatility in 2012, according to Kenneth Heinz , president of data provider Hedge Fund Research Inc. , although by some measures it has been ticking up again recently.
Write to Laurence Fletcher at laurence.fletcher@wsj.com
(END) Dow Jones Newswires
10-07-16 1148ET
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