Kettera Strategies Heat Map - January 2023

Systematic Trend Programs

Long-term trend programs were mixed to negative in January, where performance was largely  depending on exposure to fixed income and short-term rates – which was clearly the worst performing sector for this group. The trend toward higher yields reversed mid-month, and most programs were caught short in Europe and the US.  Equities were also generally negative, as equities reversed a mid-month downtrend and rallied, catching most models (especially longer-term models) wrongly positioned. Shorter-term models caught the reversal in Europe and the US. Trend models in currencies appeared to be slightly positive with long G10 and EM exposures versus a falling USD trend that began in December. Commodities were mixed, with successful programs catching a big rally in gold and copper and avoiding silver, palladium and platinum. Short natural gas was a successful trade in energies, while crude offered little opportunity for trend traders.

Currency Programs

Expectations of the US Fed slowing rate increases led to the US Dollar Index (DXY) falling 1.4%, continuing a downward trend that began in December. Most of the profitable programs we observed were long both G10 and EM currencies vs. the USD. While many discretionary macro traders have started to regard short USD as an increasingly a crowded trade, several short USD positions brought profits in January. Successful positions included long the British pound and euro, and the so-called “commodities currencies” such as Aussie and the Canadian dollar, against USD. In emerging markets, long the Mexican peso MXN was a consistently profitable trade. Some programs trade gold vs. USD, and in January long gold was quite successful.

Agricultural Commodities Programs

January was a relatively quiet month for agricultural futures, making performance unsurprisingly “mixed”, with most programs landing +/-2%. Of those we follow, the more successful appeared to be long-biased soybeans and soymeal on drought and subsequent supply fears in Argentina and southern Brazil. The USDA released its report mid-month and indicated fewer anticipated supplies of corn, which sent prices mildly higher and rewarded long-biased positions. There is pervasive long cattle positioning among programs, some outright directional using options or long-biased spreads, as there appears to be a major upcoming supply shortage of female cows and heifers, limiting future cattle herds (supply).

Industrial Commodities (Energy and Metals) Programs

Fundamentals-based metals programs that were positioned long in the base metals, namely copper and iron ore, were duly rewarded during the month. Such programs went long based on supply and demand factors, where positioning was both directional using options, or expressed in bullish spreads. Long gold, relying on similar factors, was also a profitable trade. Prices of crude oil and petroleum products (such as gasoil and heating oil), on the other hand, were once again whippy, choppy, and very difficult to trade. That said, in natural gas, fundamentals-based traders that correctly identified ample supplies and storage – and the effect of the somewhat milder winter temperatures - were short-biased in spreads and rewarded well.

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Kettera Strategies

Notes:

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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The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group