Kettera Strategies Heat Map - December 2021

Industrial Commodities Specialists

Metals strategies with long exposures to precious and or base metals performed well, either by straight directional bets or spreads (most likely those with a long bias). Crude traders directionally long caught the rally in December. Natural Gas traders with short exposure to N. American markets benefitted from downward trending prices due to mild Dec temperatures in N. America.

Quantitative Macro Programs

Most quant macro strategies appeared to have a good month.  The theme was long equities, and short fixed income. Relative value spreads in fixed income also generally seemed to fare well. In the FX sector, long positions in British pounds, certain commodities currencies, and the Nordic currencies -  and shorting Japanese yen and some commodities currencies with weaker balance sheets.  

Systematic Trend Programs

As a gross generalization, nearly all systems caught the long equities trade, but lost out on the weakening US dollar, longer-term fixed income (particularly after the ECB announced a quicker end to asset purchases than expected, and the Fed announced accelerated tapering).  Fixed income positions were particularly painful for trend systems.  Omicron fears coming into the month encouraged the markets to trend bullish on bonds, betting that the central banks would delay tapering and continue easy monetary policies. This trend quickly reversed.  One saving grace may have been the crude oil rally, which many (but not all) programs appeared to catch.

FX Strategies

Long USD was the prevailing “risk-off” positioning going into December as a result of Omicron fears and high inflation numbers.  When Omicron fears subsided, however, investors switched to “risk-on” – e.g. selling the JPY and buying USD, and going long commodity currencies.  Many FX programs also struggled as many currencies reacted unexpectedly to central bank action (e.g. Fed more hawkish – USD rallies;  BOE hiked rates and BP rallies; but ECB less accommodating and the Euro still rallied vs the USD ).  For many, however, significant gains towards the end of the month netted out losses.

Shorter-Term Strategies

Short-term strategies struggled with choppy markets, reversals, and stop-outs. Although several market sectors proved challenging, the two sectors that seem to have caused the most damage are equities and fixed income, particularly in N. America and Europe.

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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-The IndexIQ Hedge Global Macro Beta Index

2-The Societe Generale Trend Index and SG CTA Index

3-The Societe General Short-term Traders Index: (same link as above)

4-The Eurekahedge AI Hedge Fund Index

5-The BarclayHedge Currency Traders Index and BTOP FX Traders Index

6- The BarclayHedge Discretionary Traders Index and Barclay Ag Traders Index and NilssonHedge Commodities CTA Index

7-The 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 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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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