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Flash Report Dec 22

Very few winners and a lot of losers. That is a short summary of the annus horribilis that 2022 turned out to be. CTAs and in particular trend following strategies managed to outperform most of the other sophisticated strategies. Trend Following is a robust, but not a Sharpe efficient, manner to adapt to new market conditions.

But in a year where robustness was premiered over more sophisticated strategies, it did provide to be the best strategy. Much due to moves in Commodities, Currencies, Equities, and Bonds. Pretty much all global macro markets exhibited strong moves. There was no lack of significant market developments.

The strength of CTA performance was somewhat moderated in a risk-seeking fourth quarter and several CTAs gave back large amounts of profits in the last half of the year.

Trend following is a strategy used by some commodity trading advisors (CTAs) to identify and capitalize on trends in the markets. This can be done using a variety of techniques, such as analyzing charts, using technical indicators, or making use of quantitative models. The goal of trend following is to identify the direction of a trend and then trade in that direction, potentially capturing gains as the trend continues.

Trend following can be a useful approach for traders looking to capitalize on market movements, but it is important to note that it is not without risk. Trends can change or reverse unexpectedly, and there is always the potential for losses in any trading strategy. As with any investment, it is important to carefully consider your own financial situation and risk tolerance before implementing any trading strategy.

Amongst the winner, we note that Risk Premia funds held up reasonably well, with strong returns from Trend and Value, and not a large negative impact from various types of volatility risk premia. Market Neutral strategies continued to eke out small numbers, due to the strong returns from several factor-driven strategies.

Based on preliminary reporting from 63% of the funds that we track, the average Hedge Fund (surviving and reporting) was down 4.1%, which is magnificent compared to major equity indices, but a far cry from absolute returns. Early in the year, we saw several Equity Long/Short managers suffer significantly.

Crypto managers more or less imploded due to horrible returns from the beta component. And a fair share of the managers that we track were as long as you could potentially be. In this category, we have also noted a significant decline in the number of managers that are operating strategies.

At NilssonHedge we may not be the brightest and the best when it comes to making forecasts. We are much better at handling past returns (that are not indicative of future results). But 2023 is likely to be very different from 2022. What worked last year will most likely not work as well in 2022. We would be surprised to see another 70% drop for cryptos (this may not age well) and equally surprised to see a strong performance for systematic CTAs (this could also age poorly).