Kettera Strategies Heat Map - July 2022

Systematic Trend Managers

July markets saw broad-based trend reversals across nearly all sectors. The month began with strong rally in global equities and bond prices. Other market sectors saw reversals – or just sideways choppiness – later in the month: The USD and many industrial commodities reversed mid-month, while many ag markets were generally choppy most of the month, suddenly surging upward in the last week. Most of these moves went against the LT Trend Followers’ net short equity, long commodity, short fixed-income & rates, and long US Dollar positioning. Fixed Income losses appeared to be the biggest detractor for most systematic managers.

Discretionary Global Macro Managers

Most of the discretionary global macro managers we track performed well, correctly anticipating the strong reversals in fixed income, commodities and currencies. Markets were heavily influenced by central bank guidance and rate hikes, and it appears the “old school” global macro managers successfully spotted the inflection points in the US Dollar, short-term interest rates, and the S&P.

Commodity Specialists -  Agricultural (Grains / Livestock)

Most of the grain trading specialists we cover were down on the month, largely due to mixed messages from several different directions that made for choppy trading and tricky position management. Global recession fears and lower demand expectations kept pressure on prices from moving too much higher, while weather models imprecisely predicted hot and dry conditions in the heart of the growing region that would have led to less-than-ideal growing conditions, but the forecasts didn’t materialize making for sharp price action in both directions.  The choppiness punished long-biased spreads and outright directional exposures.

Commodities Specialists -  Industrial (Energy / Metals)

In contrast to last month, many (if not most) energies and metals specialists appeared to have a profitable month. Base and precious metals markets continued their sell-off, benefiting disciplined traders who held on to their short exposures, particularly in copper, gold and silver. Energies also sold off due to recession fears and corresponding demand destruction. Natural Gas traders caught a strong rally throughout the month rewarding long-biased spreads and directional exposures.

Shorter-Term Strategies

While typically a difficult category to pin down, as short-term trading covers a wide variety of programs, there were some general themes in July. The month was characterized by choppy markets across most sectors. The quickest (higher frequency) models fared well, catching the reversals in equities, fixed income, FX and commodities. Short-term programs with slightly longer models suffered in the sharp reversals in equities and fixed income, pulling the sector down into negative territory. 

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Kettera Strategies

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 Barclay Hedge Currency Traders Index

6-                Blend of Barclay Discretionary Traders Index and Bridge Alternatives Commodity Hedge Fund Index

7-                The Barclay Agricultural Traders Index: (same link as above)

8-                The Barclay Fixed Income Arbitrage Index: (same link as above)

9-                Blend of Eurekahedge Relative Value Volatility Hedge Fund Index and Eurekahedge Long Volatility Index:

10-              Blend of Eurekahedge Asset Weighted Multi Strategy Asset Weighted Index and Barclay Hedge Fund Multi Strategy 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