Kettera Strategies Heat Map - December 2024

For the month of December, the following summaries highlight four of the ten style categories that we track.

Quant Global Macro

Quant global macro strategies experienced mixed to positive performance in December. Like their systematic trend cousins, quant macro seemed to find its best opportunities in currency markets but challenging conditions in metals. But that’s probably the extent of the similarities. In currencies, most programs performed best by being long the US dollar vs. most G10 and emerging currencies. In equities, performance was mixed as more agile programs were able to catch the run up during the first half, and flip to short during the year end sell-off. One of the more profitable positions was to be long VIX as it rose sharply during the S&P slide. In fixed income, short positions in bonds (yields rising) benefited econometric fundamentally-based inflation models. Most programs were hurt by long exposures in precious (gold, silver) and base (copper, nickel, lead) metals as most every metal market traded down in December. Energy trading was mixed, as more price-based programs lost on short positions in crude and products, while econometrically-based models were long and correct.

Systematic Trend

Most long-term trend following programs we follow were positive in December, with longer-duration programs outperforming medium-term programs (2-4 weeks holding periods). The SG Trend Index, a benchmark for such strategies, reported a positive 1.6% for the month. (We note, however, that at mid-month the estimate for that index was nearly double that figure, as many constituent programs were long US equity indices that then retraced in the latter half of the month after hawkish Fed comments.) Currencies were by far the outperforming sector, and in many cases, enough to overcome losses in the other asset groups. The US dollar continued to strengthen vs. nearly all major currencies. Fixed income and interest rates were the most likely distant second. Shorting US and European bonds were profitable as yields rose in both locations. Equity index trading was consistently negative as long positions were punished into a year-end sell-off. Commodities were generally negative, pulled down by short positions in crude and refined products (unleaded gas, heating oil, gasoil), and long positions in precious and base metals that traded lower in December.

Commodities Specialists – Agricultural

Specialists focused on the agricultural markets were generally down in December. For programs in the grains/oilseed sector, losses in grains were dominated by short exposures in soybeans and soymeal. The fundamental supply and demand picture in soybeans points toward record supplies in S. America and low demand for US exports, both of which are bearish. But a short-term rally fueled by dry weather headlines in S. America, and compounded by systematic programs piling into the rally, were enough to overcome the longer-term fundamental outlook. Some programs benefited by a long bias in corn, while wheat did not play a significant role in December trading. Livestock traders were mixed. The big story is in cattle (beef, feeder, live), as these markets are rallying into all-time highs. The fundamental opinion is that these prices aren’t totally justified, and discretionary strategies are cautious not to oversize positions. Those managers focused on soft commodities dealt with all-time highs in coffee prices, which brought unprecedented volatility and intraday swings.

Currencies

Currency programs across the board appeared to be generally positive in December. This was largely the result of catching the biggest trade of the month, long US dollar vs. most G10 and emerging market currencies. Of these currency pairs, the biggest contributors seemed to be long USD vs. euro and Japanese yen, and long euro vs. JPY. Other big contributors were short Canadian and Aussie dollar vs. USD. The short-term systematic FX programs we follow were marginally positive, while the longer-term holders – both systematic programs and the discretionary fundamental managers- outperformed. Rising bond yields in the US, further fueled by hawkish comments by Chairman Powell during the mid-month Fed meeting kept the USD rising into year-end. The yen was further weakened by comments from the Bank of Japan about delaying expected rate hikes. Those currency programs that include gold did well to short this precious metal, aka the “yellow currency,” as gold, silver and platinum as a group traded lower.

Kettera Strategies Heat Map - December 2024

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Kettera Strategies

Footnotes:

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 Societe Generale Trend Index
4. The Societe Generale Short-term Traders Index
5. The BarclayHedge Currency Traders Index
6. Blend of Bridge Alternatives Commodity Hedge Fund Index and BarclayHedge Discretionary Traders Index
7. The BarclayHedge Agricultural Traders Index
8. The Eurekahedge Commodity Hedge Fund Index:
9. Blend of CBOE Eurekahedge Relative Value Volatility Hedge Fund Index and CBOE Eurekahedge Long Volatility Index
10. Blend of Eurekahedge Asset Weighted Multi Strategy Asset Weighted Index and BarclayHedge 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(s) and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group