Kettera Strategies Heat Map - March 2023

Discretionary Macro Strategies

In many ways the discretionary macro managers did right what the systematic models (see below) got wrong in March. This was readily apparent in the interest rate markets. Many (but not all) of the global macro managers that we track appeared to navigate these markets well, particularly those that felt the that the late 2022 mania about inflation had been overblown, and bonds were prepared to rally. (Putting aside the fact that the rally was actually sparked more by a “risk off” crisis of confidence in the banking sector rather than subsiding inflation.) Long precious metals seemed to also be a common theme among the more profitable programs. Equities markets, in contrast, appeared to be a detractor for most, as the rally in the second half of the month took many by surprise.

Systematic Trend Strategies

In contrast to February, March brought one of the worst months in the history of systematic futures trading. The strongest trend, the “yields-rising / bonds falling” move, reversed dramatically with the banking crisis (e.g Signature Bank and Silicon Valley Bank) that hit the market from March 8 through 10.   Currencies were the second worst performing sector as most models came into the month long USD vs. G10 currencies and EM currencies (for the latter group, especially MXN). Other sectors did not help much, as equities trading was mixed to negative, and commodities were mixed across its sub-sectors in metals, energies and grains, although a few programs found profits in short energies and long precious metals positions.

Commodities Specialists – Agricultural

While February saw wide variety in performance, most March numbers for this group were decidedly negative. Whether using directional, relative value, or calendar spread positions, grain traders faced high volatility, both dry and wet conditions in S. America made soybean trading difficult to navigate, and while corn supply fundamentals seemed bearish prices rallied anyway. Directional and long-biased spread traders in livestock markets had a good month, especially in live cattle, as limited future supply expectations rallied prices. Managers with positioning in softs generally performed well – particularly those with a long sugar exposure.

Commodities Specialists – Metals/Energies

This group was a mixed bag in March, although most of the programs we follow – particularly those in the energy complex – appeared to perform well. While crude oil frustrated many directional traders, spreads and RV positions appeared to be largely profitable. Directionally short natural gas was also a winner.  In metals, the better performing sectors, whether directional or spread, seemed to be found in the precious metals, as industrial metals (e.g. copper, nickel, etc) were more difficult to navigate.  

Currency Strategies

Most of the FX programs we follow had positive months (some very positive). Generally, most directional positions were already poised short the USD coming into the month, and the bond rally only accelerated the dollar’s weakness. And there wasn’t much of a difference in performance between the G10 specialist’s vs the Emerging Market (EM) FX specialists. 

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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 Eurekahedge Macro Hedge Fund Index and BarclayHedge Global Macro Index
2. The Eurekahedge Macro Index
3. The Société Générale Trend CTA Index
4. The Société Générale Short-term Traders Index
5. The Barclay Hedge Currency Traders Index
6. Blend of Bridge Alternatives Commodity Hedge Fund Index and Barclay Discretionary Traders Index (for February only the Barclay index was used as the Bridge index was unavailable.)
7. The Barclay Agricultural Traders Index: (same link as above)
8. The Eurekahedge Commodity Hedge Fund Index
9. Blend of CBOE Eurekahedge Relative Value Volatility Hedge Fund Index and CBOE Eurekahedge Long Volatility Index (same link)
10. Blend of Eurekahedge 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