Strategic Analysis Heat Map for January 2023 by Kettera
In January 2021, Kettera Strategies' Systematic Trend Programs (STPs) demonstrated varying performance across different asset classes, including equities, currencies, agricultural commodities, and industrial commodities. Several key factors influenced the outcome, as detailed below.
Market Trends and Momentum
The STPs capitalize on persistent price trends, and in January 2021, strong directional moves in various markets, particularly those with clear momentum, played a significant role in performance. For equities, the continuation or emergence of strong rallies or corrections impacted returns significantly. In currencies, trending moves driven by macroeconomic or policy-related factors affected performance.
Volatility Levels
Volatility influences both the opportunity and risk within trend-following strategies. Moderate to elevated volatility typically enhances trend capture potential, while extremely low or choppy volatility can reduce effectiveness. The variations in volatility across agricultural and industrial commodities shaped how well trends could be exploited.
Asset-Specific Fundamentals
Agricultural commodity prices were affected by fundamental factors such as weather conditions, crop reports, and supply-chain dynamics in January 2021, influencing trend directions. Industrial commodities were impacted by global demand conditions, manufacturing data, and geopolitical developments, which created or dampened trends.
Macro-Economic and Policy Environment
Broader economic trends, including recovery signals from the COVID-19 pandemic and stimulus measures in key economies, influenced equity and currency markets. Central bank policies and interest rate expectations played into currency trends and indirectly affected commodities through demand and financing cost channels.
Program Parameters and Risk Management
The specific design of Kettera’s Systematic Trend Programs, including look-back periods, signal generation methodology, and risk controls, affected how well the strategies responded to January 2021 market conditions. Position sizing and stop-loss rules also influenced realized performance and drawdowns.
Highlighted Performances and Benchmarks
- In long gold, the trade was profitable in industrial commodities programs.
- Shorter-term models caught the reversal in Europe and the US.
- In natural gas, fundamentals-based traders that correctly identified ample supplies and storage were short-biased and rewarded well.
- Most profitable programs in currency programs were long both G10 and EM currencies vs. the USD.
- Long the Mexican peso MXN was a consistently profitable trade in emerging markets.
- Trend models in currencies appeared to be slightly positive with long G10 and EM exposures versus a falling USD trend that began in December.
- Long-biased soybeans and soymeal on drought and subsequent supply fears in Argentina and southern Brazil were successful in agricultural commodities programs.
- Fundamentals-based metals programs that were positioned long in the base metals, namely copper and iron ore, were profitable during the month.
Overall Performance
- The long-term trend programs had mixed to negative performance in January.
- The US Dollar Index (DXY) fell 1.4% in January, continuing a downward trend that began in December.
The benchmark sources for this letter are a blend of Hedge Fund Intelligence Global Macro Index and Eurekahedge Macro Hedge Fund Index, The Hedge Fund Intelligence Global Macro Beta Index, and Societe Generale Trend Index. Other benchmarks mentioned in the article include the Blend of Barclay Discretionary Traders Index and Bridge Alternatives Commodity Hedge Fund Index, the Societe Generale Short-term Traders Index, the Eurekahedge AI Hedge Fund Index, the Barclay Agricultural Traders Index, the Barclay Hedge Currency Traders Index, the Barclay Hedge Crypto Traders Index, the Blend of Eurekahedge Relative Value Volatility Hedge Fund Index and Eurekahedge Long Volatility Index, the Blend of Eurekahedge Asset Weighted Multi Strategy Asset Weighted Index and Barclay Hedge Fund Multi Strategy Index, and the Barclay Fixed Income Arbitrage Index. The "style baskets" referenced are research tools created by Kettera for tracking categories and are classifications drawn by Kettera Strategies in their review of programs on and for the Hydra Platform.
- Investing in long gold, specifically in industrial commodities programs, proved profitable in January 2021, as the trends in gold followed the broader market dynamics.
- The STPs' focus on technology, such as the integration of artificial intelligence (AI) in strategies as represented by the Eurekahedge AI Hedge Fund Index, aided in capturing shorter-term trends, as demonstrated by profitable trades in Europe and the US.
