March turned out to be an exciting month, but ultimately it was much ado about nothing. Except for some Macro funds that had a strong view on continued inflationary pressures, CTAs were the largest victim of the intra-month banking crisis. For a short moment, the ghosts of the Great Financial Crisis were reborn, but swift regulatory action managed to stave off contagion and systemic risk pressures. In the end, equities continued to climb a wall of worries.
In short:
- Equities had positive returns, despite a banking crisis (Silicon Valley Bank, Credit Suisse, …).
- Treasury Bonds strengthened significantly as capital was moved into less risky assets.
- Commodities had a difficult month with the Energy Complex suffering.
- The USD weakened, which is rather unique in a crisis scenario.
- CTA, being largely short Fixed Income suffered as many Macro Funds, Corporate Treasurer, and Risk Managers bought “risk-free” assets.
- Despite a risk-off sentiment, Crypto strategies had positive returns
Our more traditional Liquid Alternative Indices faired rather ok in the first quarter. Equity Long/Short, Market Neutral, and Event Driven strategies are positive for the year. CTAs ended the first quarter with a significant drawdown.
| Index | March | YTD |
|---|---|---|
| Crypto | 3.3% | 38.9% |
| CTA | -4.7% | -3.6% |
| Equity Long/Short | 0.5% | 1.9% |
| Market Neutral | -0.6% | 0.0% |
| Event Driven | -0.3% | 0.5% |
Next week, we will have a clearer picture of which CTAs lost and who managed to navigate the rapidly reversing Bond Markets. We note that CTAs are now likely scaled out of Bonds, slightly less exposed to Equities due to the increased volatility.
Using four simple Breakout Strategies to judge direction, we note that CTAs rapidly exited the short bond trade. The truly long-term trend followers may still be short-biased in bonds, but most other managers have flipped to a long position. This has happened before and will happen in the future. Trend following is not dead, but shaken.