Trend Following had a lackluster October, largely driven by unwinding positions in Bonds (shifting from long to short) and Currencies (adding to long USD exposures). This resulted in a net loss of 4.2%, and a chunk of that looks to be recovered today, the day after the post-election of Trump II. We are most likely looking for a positive day, on a day when equities showed some remarkable positive skew.
While correlations can be a good risk estimate, in a period with quickly changing positions, it is lagging indicator. Therefore, we turn to our ETF position indicator. We note that Fixed Income and Currencies got whipsawed in October, but seem to have saved the portfolios of many CTAs during early November.
The recent long exposure in Fixed Income was gradually exited and a short exposure was reestablished. As the election results are pointing toward a Republican sweep, US Fixed Income Futures had a lackluster day and the USD strengthened; both benefitting CTAs. This may be one of the shortest longs in Trend Following history.
Equities, a long-held view for most CTAs clearly enjoyed the strong US markets. Energy markets, sold off further adding to profits.
The above is true for longer-term trend followers, the strategy that suffered the most in October. Maybe the quarterly seasonality is still alive, the 4th quarter is usually good for trend followers. Tomorrow is FOMC day.