Kettera Strategies Heat Map May 2021
May demonstrated the stark differences in returns that can occur among discretionary vs model-driven macro programs. On the whole, discretionary managers outpaced their quant cousins this past month. While many discretionary managers differ widely on the subject of inflation (in all its varieties), the common profitable themes in May appear to have been long precious metals, long selected bond markets (including long US TIPS), short Bitcoin, and scaled back positions in commodities.
Thanks to the unexpected U.S. acreage and yield reports and contradictory demand rumours, grain markets in May were rocked by volatility. The long, extended price trends abruptly ended, requiring specialists to be nimble and hedged. Relative value traders, using calendar spreads and inter-commodity ratio spreads, generally performed better than outright directional strategies.
Strong upwards moves in gold, silver and copper benefited commodities directional strategies. Iron ore spot prices rose 25% in the first half of May before giving it back, rewarding those managers nimble enough to take profits on their longs. In energies, crude oil specialists faced a tricky month where prices fell mid-month then rallied strongly. Natural gas traders faced a tight, range-bound market with a late-month price spike that quickly faded. Bullish spread strategies in both crude and nat gas generally performed successfully.
The prevalent theme in May among systematic trend programs was that gains in FX and commodities outweighed setbacks in equities and fixed income. The way the USD weakened against most of the G10 currencies allowed the move to be captured by most programs. Long trends in crude, precious metals and copper were also good contributors; programs without sizeable exposures to commodities tended to underperform others. Last, a common perception over the last year has been that shorter- to mid-term trend models have performed better, but May showed that many longer-term models shouldn’t be counted out yet.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. See notes at end of this document for details on the construction of the Hydra "baskets" and the benchmark used for each style class. Also note that some baskets may contain managers that have not yet reported by this date. *=Less than 75% reported.
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.
1-The IndexIQ Hedge Global Macro Beta Index can be found at: https://www.newyorklifeinvestments.com/indices/iq-hedge-global-macro-beta-index-iqhggmb?ticker=IQHGGMB
2-The Societe Generale Trend Index and SG CTA Index can be found at: https://cib.societegenerale.com/en/prime-services-indices/
3-The Societe General Short-term Traders Index: (same link as above)
4-The EurekaHedge AI Hedge Fund Index https://www.eurekahedge.com/Indices/IndexView/Eurekahedge/683/Eurekahedge_AI_Hedge_fund_Index
5-The BarclayHedge Currency Traders Index and BTOP FX Traders Index can be found at: http://www.barclayhedge.com/
6- The BarclayHedge Discretionary Traders Index and Barclay Ag Traders Index can be found at http://www.barclayhedge.com/, and details on the NilssonHedge Commodities CTA Index can be found at: https://nilssonhedge.com/index/cta-index/commodities-cta-index
7-The CBOE Eurekahedge Relative Value Volatility Hedge Fund Index can be found at: http://www.eurekahedge.com/Indices/IndexView/Eurekahedge/641/CBOE_Eurekahedge_Relative_Value_Volatility_Hedge_Fund_Index
8-The Eurekahedge-Mizuho Multi-Strategy Index: (See above)
9-The Eurekahedge Long Short Equities Hedge Fund Index: (See above)
10-Blend of BarclayHedge Equity Market Neutral Index: http://www.barclayhedge.com/ with EurekaHedge Equity Mkt Neutral Index (see link above)
11 – Barclay 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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