Over the last couple of days, for obvious reasons, there have been many significant market moves. Equities and Bond yields are down massively, as markets are pricing in increasing odds of a US/Global recession. So far, it looks bleak for Trend Followers, somewhat reminiscent of the Covid Crash. Dispersion will be high in April, where stops, trading frequency, and sector allocation will determine the outcome.
One can argue as the Trend Following space has moved to longer time frames, the daily immediate response to a crisis is no longer there.
Pretty much all hedge fund strategies have taken a beating in the current market environment.
We have limited fund data so far, but as part of the universe that we observe, both Thursday and Friday look to have been difficult for trend-biased managers. Both days were characterized by large equity moves, but also some truly large moves in Currencies (i.e. the Swiss France, and the Australian Dollar) and Commodities (e.g. Crude Oil on the back of OPEC).
We estimate that CTAs (here low risk trend) are down 3.6% for the month, and down 5.8% for the year, including Friday the 4th. There is clearly a lot of month left, and if markets continue to sell off, there is certainly some profit potential from trends.
Looking at individual CTA managers for Thu/Fri, very few of them managed to come out positive. Any trader making money over the two days is above average.
Looking at sector data, we note that CTA got the right positions in Fixed Income, but wrong-footed in Equities and Currencies. Equity exposure has trended down but was still long about 10% on Friday’s close. Fixed Income exposure was too low to offset anything significantly.
Should you wish to follow the drama on the Global Markets and the impact on liquid Hedge Funds, please have a look at our daily indices. It is free to download and use.
