Strategic Analysis Heat Map for May 2022 by Kettera

In contrast to the robust showing in April, trend followers experienced a decline in May according to long-term forecasting strategies.

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2025 August 31 . 2:37 AM

2 min read

Strategic Analysis Heat Map for May 2022 by Kettera

In the financial world of May 2021, long-term trend followers faced a series of setbacks. The volatile and mixed price trends in energy commodities, structural market shifts, and changing hedging behaviors by producers disrupted the persistent trends needed for successful momentum or trend following strategies.

The energy sector and commodities-linked currencies, which were previously strong performers, saw a significant decline in May. The key factor behind this was the volatility and price swings in energy commodities. In the May 2021 and surrounding period, oil prices experienced notable swings, including dips into the $50s per barrel range before rallying again. This unpredictable price movement created difficulty for trend followers, who typically perform better in sustained trends rather than choppy, range-bound markets.

The energy sector also saw transitions such as increased renewables impact on power generation, and fluctuating demand patterns due to weather and supply chain factors. For example, rising natural gas prices driven by stable production but increased export demand, as well as solar displacing natural gas generation, created a more complex and less predictable price environment.

Another contributing factor was the shifting hedging practices by producers. U.S. shale producers, who had largely pulled back from hedging since the pandemic, began re-engaging in WTI futures and options again in 2021 due to shifting price dynamics. This ebb and flow in hedging activity impacts price signals and can reduce the persistence of trends needed for successful momentum or trend following strategies.

Broader financial market volatility, geopolitical tensions, inflation data, and trade talks in mid-2021 also contributed to inconsistent price patterns across commodity-linked currencies and energy commodities, impacting trend followers' ability to capture steady directional moves.

Most industrial commodities (metals and energy markets) programs were down in May, while trading in equities indices was difficult for longer-term models. However, pure energy traders fared better as the energy markets continued their march higher.

In an attempt to navigate these challenging market conditions, a blend of the Eurekahedge Asset Weighted Multi Strategy Asset Weighted Index and Barclay Hedge Fund Multi Strategy Index, the Eurekahedge Relative Value Volatility Hedge Fund Index and Eurekahedge Long Volatility Index, and a blend of the Barclay Discretionary Traders Index and Bridge Alternatives Commodity Hedge Fund Index were discussed as potential solutions.

Quant Macro strategies, which rely more on fundamental and economic inputs, were generally positive in May, offering a contrast to the struggles faced by long-term trend followers. The Eurekahedge Event-Driven Hedge Fund Index and the Barclay Hedge Currency Traders Index were also mentioned as indices that performed relatively well during this period.

Despite the challenges faced by long-term trend followers in May 2021, the introduction of new indices such as the Eurekahedge AI Hedge Fund Index and the Barclay Hedge Crypto Traders Index, as well as the discussion of potential strategy blends, indicate a continued effort to adapt and innovate in the face of market volatility and shifting trends.