Strategic Analysis Heat Index - November 2022
In the financial landscape of November 202x, a variety of factors shaped the performance of different investment strategies. This article offers an overview of the key influences on systematic trend strategies, discretionary global macro strategies, quant macro strategies, agricultural and industrial commodities specialists, and currency specialists.
Systematic Trend Strategies
In volatile markets, systematic trend strategies can struggle unless they are designed to adapt quickly to changing conditions. The presence of discernible trends in markets like currencies and stock indices supports the profitability of these strategies. However, the effectiveness of these strategies depends on the precision of entry and exit rules.
Discretionary Global Macro Strategies
Discretionary strategies might be more adversely affected by market volatility, as they often rely on the human interpretation of market trends and sentiment. The overall economic outlook, including improvements in economic indicators, can influence discretionary decisions.
Quant Macro Strategies
Quant macro strategies rely heavily on quantitative models to identify trends and opportunities. The robustness of these models is crucial for success, while the accuracy and timeliness of market data feed into these models, impacting their effectiveness.
Agricultural and Industrial Commodities Specialists
Changes in supply and demand dynamics, influenced by factors like weather conditions, geopolitical events, and economic policies, can significantly impact commodity prices. Overall economic health affects demand for commodities, with stronger economies often leading to higher demand.
Currency Specialists
Central banks' decisions on interest rates and quantitative easing influence currency values and can significantly impact currency trading strategies. Indicators like GDP growth, inflation rates, and trade balances are crucial for understanding currency movements.
November 202x was a challenging month for currency specialists, with the US dollar dropping significantly following weaker-than-expected U.S. inflation numbers and expectations of a reversal by the U.S. Fed in 2023. Agricultural commodities experienced a choppy month, with neither breaks nor rallies able to hold.
Metals specialists, on the other hand, had a good November, particularly fundamentals-based strategies that were long base metals.
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.
The "style basket" for a class is created from monthly returns (net of fees) of programs that are either currently or formerly on Hydra, or under review with an expectation of being added to Hydra. These "style baskets" are research tools created by Kettera Strategies to track categories and are classifications drawn from their review of programs on the Hydra Platform. They are meant purely for analysis and comparison purposes and are not investible products or index products being offered to investors.
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. The performance of Quant Macro strategies was mixed, with more negatives than positives, due to the reversal in the "risk off" trends. Long term trend following strategies experienced a significant loss in November due to falling inflation rates and expectations of a slowdown in interest rate hikes. Energies traders were largely flat to negative, due to high and choppy volatility in crude and products markets, and natural gas.
Performance of those Quant Macro programs that ended the month in positive territory generally saw gains in long equities and long commodities. Base and precious metals rallied, while energies sold off, against established trends. Many discretionary global macro strategies performed positively in November, depending on the asset classes focused on and the extent of exposure to the "risk off" trade. 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. The arrows in the letter represent the style basket's overall performance for the month. The index providers may update their reported performance from time to time.
- In the context of November 202x's financial landscape, the effectiveness of quant macro strategies relied on the robustness of their models and the accuracy of market data, as the precision of entry and exit rules played a crucial role in their performance.
- The performance of discretionary global macro strategies in November 202x depended on the asset classes focused on and the extent of exposure to the "risk off" trade, with many strategies experiencing positive results.
