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Trend-Following Funds Held Steady in June on Gold and Silver Trades, Societe Generale Says
Summary
Systematic hedge funds, including CTAs, saw a nearly flat performance in June, as profitable positions in precious metals offset losses in energy and currencies, a Societe Generale report indicates.
Trend-following hedge funds navigated a volatile June with a nearly flat performance, as profitable trades in gold and silver successfully offset losses from positions in crude oil, coffee, and the Australian dollar. According to a client note from Societe Generale seen by Reuters on Monday, these systematic strategies held their ground despite significant market crosscurrents.
June Performance Breakdown
Systematic hedge funds, a group that includes commodity trading advisers (CTAs), delivered an average negative return of just -0.1% in June, the French bank's analysis of 78 funds showed. This resilience was largely due to the performance of precious metals.
Key contributors to fund performance in June included:
- Positive returns: Positions in silver, gold, and equities helped bolster portfolios.
- Losing bets: Trades in crude oil, heating oil, and the Australian dollar detracted from performance.
Gold itself fell nearly 12% in June. This move delivered profits to funds that had correctly positioned for a decline, betting against the yellow metal as expectations for higher interest rates grew.
AdYear-to-Date and New Positions
Despite the muted monthly result, trend-following funds and CTAs remain solidly in positive territory for the year, up over 9% on average, according to Societe Generale. The performance across the tracked funds for the year so far has varied widely, ranging from an 11% gain to an 8% loss.
Looking at more recent activity, the note highlighted new positions initiated since June 23. Funds have reportedly established new long positions in cocoa and short wagers on wheat. Since the end of June, New York cocoa futures have risen over 18%, while wheat has gained over 8%, suggesting the short wheat positions would have incurred losses. The bank also noted that the most crowded trades among these funds were in interest rates.
Market Context
The market environment has been shaped by inflationary pressures, partly driven by energy disruptions amid geopolitical tensions, which has increased expectations of central bank interest rate hikes. While gold is often seen as an inflation hedge, it can underperform in a rising-rate environment because it offers no yield, making interest-bearing assets more attractive to investors.