Kettera Strategies Heat Map - November 2024
For the month of November, the following summaries highlight five of the ten style categories that we track.
Systematic Trend Programs
Long term trend followers had a strong month in November, and the most interesting observation is how differently each program prospered. The one constant is that fixed income and interest rates was the laggard sector, negative for most programs. Donald Trump’s victory in the presidential election early in the month resulted in a strong rally in U.S. equity markets and a strong rally in the U.S. dollar (especially versus the Euro). U.S. bond yields were marginally lower after the Fed cut rates by 0.25%. For some trend programs, long U.S. equity indices was the best performing sector, for others FX was the best sector (mostly long USD) and - for some - commodities were best, particularly those programs long soft commodities (mostly cocoa and coffee positions). Setbacks were found in some of the commodities markets – e.g. most came into the month-long precious metals in the face of a sell-off. For other programs the energy sector was particularly troublesome, with short natural gas positions suffering a reversal and crude oil sideways and choppy. In summary, last month was quite diversified even though the sector overall had a strong showing.
Discretionary Global Macro Managers
Discretionary Global Macro programs were mixed in November. What mattered most – although it may seem obvious in hindsight – was how ones portfolio was positioned going into the U.S. election: Whether the PM read the tea leaves and correctly or incorrectly in predicting a Donald Trump victory and sweep of the two legislative bodies (a victory much more decisive than most anticipated). Most programs that felt such a groundswell coming did quite well in their long equities positions. But most of these same managers were also long gold as a hedge, suffering setbacks as gold sold off. At the same time a Trump victory was also perceived to be negative for the US dollar given the former president’s fondness for spending and heavy tariffs, which are seen as inflationary. Yet the USD surprised many as it actually rallying against most G10 currencies - particularly versus the euro. We noted that the few macro shops that came in long USD were based outside the U.S., perhaps because they sensed the EU’s weaker relative economic standing and growth expectations would offset any anti-USD inflation fears. Macro performance in fixed income was mixed to negative as markets were choppy, while programs with a relatively greater focus on commodities fared slightly better.
Volatility/Options Specialists
Volatility traders (we really only follow long volatility and relative value volatility programs, not premium sellers) focused on the equities markets sustained a poor November, as the S&P continued its steady and calm march higher throughout the month. This was particularly true just following the U.S. election, with implied volatility indices (primary the VIX) continuing to drop - leaving little opportunity for long volatility strategies to perform. Most “long vol” programs depend on pullbacks in the S&P that are accompanied by spikes in the VIX to prosper; this did not happen at all last month, leading to losses. More diversified long volatility strategies (e.g. relative value) that predominantly use option ratio trading (and not just in equities but across a wider range of markets) were closer to flat on the month.
Commodities Specialists – Agricultural Specialists
Commodity agricultural programs focused on grains and livestock performed well in November, and programs that include softs markets, particularly cocoa, coffee and sugar, did especially well. The bulk of this group are discretionary programs, and in the grains discretionary bets on short soybeans and soymeal (based on oversupply and weak U.S. export demand) performed relatively well – both from directional short futures positions as well as spreads. This exposure was only mildly rewarding, however, as soybean prices were only slightly down. Short wheat exposures were also contributory. Rising live cattle prices, not fully supported by fundamental data, worked against discretionary programs but seemed to benefit systematic ones. Those managers trading the softs markets seemed to do extremely well - particularly those long coffee (which rallied 30% during the month) and long cocoa.
FX Programs
November presented a complex environment for the currency sector. The sector was of course dominated early in the month by the U.S. presidential election, and thereafter driven mostly by evolving central bank policies (CB and Fed rate cuts) and geopolitical developments (Middle East, Ukraine). Most of the FX managers we track were positive on the month, with most numbers ending up between flat to up 3.0%. The quick and easy summary would be that the U.S. dollar rallied versus most G10 currencies (sans the Japanese Yen). But it was not an easy path, as currency trading was choppy and difficult to navigate until well after the U.S. election. For programs trading gold vs. the U.S. dollar, for example, a clear direction in gold (down) only occurred in the last two weeks of the month. Discretionary programs outperformed systematic ones, and programs with longer holding periods fared slightly better than short-term ones.
Kettera Strategies Heat Map - November 2024
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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:
- Blend of Eurekahedge Macro Hedge Fund Index and BarclayHedge Global Macro Index
- The Eurekahedge Macro Index
- The Societe Generale Trend Index
- The Societe Generale Short-term Traders Index
- The BarclayHedge Currency Traders Index
- Blend of Bridge Alternatives Commodity Hedge Fund Index and BarclayHedge Discretionary Traders Index
- The BarclayHedge Agricultural Traders Index
- The Eurekahedge Commodity Hedge Fund Index:
- Blend of CBOE Eurekahedge Relative Value Volatility Hedge Fund Index and CBOE Eurekahedge Long Volatility Index
- 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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