What started off looking like another solid month for the asset class went sour near the end, leaving managed futures with a loss of -1.51% for May per the Newedge CTA Index.  The YTD performance, which reached as high as +5.82% during May, now stands at +2.78% (Disclaimer: past performance is not necessarily indicative of future results).

So what happened? The trend stopped being a friend. Two of the best long-term trends that many managers were enjoying – the rising Nikkei and the falling Yen – reversed in a big way in the last week and a half. The Nikkei plunged more than 15% from the mid-month intraday highs, while the Yen reversed its decline, rallying more than 3%. The S&P 500 and US Dollar sported similar, if less dramatic reversals, as well.

The question now is what happens going forward. The markets may shake off the last couple of weeks and resume their recent trajectory, in which case CTAs could hold on to (or re-initiate) their positions. Or, this could prove to be the beginning of a new trend in the opposite direction, in which case CTAs could put on long or short positions in the opposite direction and enjoy the new trend. The worst case scenario would be to resume the kind of markets we suffered through last year – choppy, sideways markets that stop out trades over and over again. Here’s hoping the next seven months look more like the first four.