Kettera Strategies Heat Map - August 2022
Systematic Trend Managers
A good month for this category, the bulk of returns for systematic trend programs in August were found in fixed income and currencies. Long the US dollar versus the major currencies appears to be one of the biggest winners. Short positions in bonds and short-term interest rates, both in Europe and North America, also loomed large as the other source of profits. Equity indices, on the other hand, were choppy and generally negative; most trend systems entered the month long equities but were stopped out mid- to late-month at a loss. Trend-based systems generally did not fare well in commodities, where short precious metals positions seemed to be the only source of positive returns
Discretionary Global Macro Managers
August was less than kind to this category, as many managers that had been profitable YTD suffered setbacks. Managers that were flat to positive tended to be those which struggled in July – to maintain short positions in North American and European Equities and bonds last month – positioning that rewarded them in August. And the converse was also true. For example, some econometric-driven managers we follow went long fixed income (or net long in fixed income relative value positions) in late June citing the prospect of a near-term recession (which typically buoys the bond markets). While this may be generally sound thinking, such positions were punished in August
Volatility/Options Specialists
Most of the volatility and options strategies that we track, both discretionary and systematic, performed well during the month. Vol traders had Fed Chairman Powell largely to thank. The VIX volatility index hovered around 23.0 by the end of July and steadily decreased. But Powell’s comments toward the end of the August (about interest rates being “higher for longer”) caused equity markets to sell off sharply (and the VIX volatility index to jump from 19.5 to 27.0). This down-up pattern in volatility allowed options traders to sell call options at fat premiums, thereby enabling them to purchase more put options – which benefitted from the sell-off.
Currency Specialists
August was a relatively simple month to summarize: It was all about the US dollar. Public comments by the US Federal Reserve on the need to quash inflation sparked a renewed rally in the dollar. This was the prevailing wind that appeared to affect FX specialists of all stripes: Fundamental and technical, longer-term and short-term. For both longer-term macro programs and higher frequency strategies, long positioning in the USD versus the G10 - especially the British pound, euro and JPY - seemed to be the biggest winners. Long USD vs. emerging market units was also generally profitable, with a few exceptions (e.g. the Mexican peso). Managers that rely on trading flow data were generally sidelined, however, as the light flows in August were too weak to generate strong signals.
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For the “style classes” and “baskets” presented in this letter: The “style baskets” referenced above were created by Kettera for research purposes to track the category and are classifications drawn by Kettera Strategies in their review of programs on and for the Hydra Platform. The arrows represent the style basket’s overall performance for the month (e.g. the sideways arrow indicates that the basket was largely flat overall, a solid red down arrow indicates the basket (on average) was largely negative compared to most months, etc.). The “style basket” for a class is created from monthly returns (net of fees) of programs that are either: programs currently or formerly on Hydra; or under review with an expectation of being added to Hydra. The weighting of a program in a basket depends upon into which of these three groups the program falls. Style baskets are not investible products or index products being offered to investors. They are meant purely for analysis and comparison purposes. These also were not created to stimulate interest in any underlying or associated program. Nonetheless, as these research tools may be regarded to be “hypothetical” combinations of managers, hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any product or account will achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
Benchmark sources:
1- Blend of Hedge Fund Intelligence Global Macro Index and Eurekahedge Macro Hedge Fund Index
2- The Hedge Fund Intelligence Global Macro Beta Index: (same link as above)
3- The Societe Generale Trend Index
4- The Societe Generale Short-term Traders Index: (same link as above)
5- The Eurekahedge AI Hedge Fund Index
6- The Barclay Hedge Currency Traders Index
7- Blend of Barclay Discretionary Traders Index and Bridge Alternatives Commodity Hedge Fund Index
8- The Barclay Agricultural Traders Index: (same link as above)
9- The Barclay Fixed Income Arbitrage Index: (same link as above)
10- Blend of Eurekahedge Relative Value Volatility Hedge Fund Index and Eurekahedge Long Volatility Index
11- Blend of Eurekahedge Asset Weighted Multi Strategy Asset Weighted Index and Barclay Hedge Fund Multi Strategy Index
12- Eurekahedge Event-Driven Hedge Fund Index
13- The Barclay Hedge Crypto Traders Index
Indices and other financial benchmarks shown are provided for illustrative purposes only, are unmanaged, reflect reinvestment of income and dividends and do not reflect the impact of advisory fees. Index data is reported as of date of publication and may be a month-to-date estimate if all underlying components have not yet reported. The index providers may update their reported performance from time to time. Kettera disclaims any obligation to verify these numbers or to update or revise the performance numbers.
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