Kettera Strategies' June 2020 Heat Map Report
In the current market landscape, various hedge fund strategies have shown varying performance trends as the equities rally persists and the U.S. dollar strengthens.
Quant and Systematic Strategies
Quantitative and systematic strategies, such as those belonging to Kettera Strategies and their counterparts, have generally benefited from volatility and clear trend signals. The recent rally led by large-cap growth and momentum factors suggests that quant strategies emphasizing momentum might have performed well.
Discretionary Macro Managers
Discretionary macro managers, who base decisions on macroeconomic conditions, including currency moves, face a mixed environment. While a strengthening USD can challenge international assets, U.S.-focused equities, especially large-cap growth, have outperformed, indicating selective opportunities.
Systematic Trend Programs
Systematic trend-following programs, which tend to benefit from sustained market trends and volatility, might have experienced limited gains due to the U.S. equity market's rally mostly driven by a narrow set of sectors and factors.
Short-Term Traders
Short-term traders likely found opportunistic volatility, although the overall calm credit markets and narrowing leadership sectors suggest selective risks.
Equity Long-Short Managers
Equity long-short managers face style and sector concentration challenges, as the concentration in large-cap growth and momentum winners may require careful positioning to avoid underperformance from shorting currently strong sectors.
Additional Details
The equities rally has been primarily driven by large-cap growth stocks, momentum factors, and mega-cap U.S. stocks, while value, mid-cap, small-cap, and quality factors remain weak. The U.S. economy is in a "post-cycle" phase with stable growth and no recession currently expected, supporting risk assets like equities.
Policy uncertainties, trade tariffs, and supply chain concerns continue to inject volatility, which tends to favor active management that captures trends while managing risks. The stronger U.S. dollar benefits domestic credit markets and U.S. equities relative to international stocks but poses challenges for sectors reliant on foreign demand.
Index Performance
The performance of several indices was mentioned, including the Eurekahedge AI Hedge Fund Index, Eurekahedge-Mizuho Multi-Strategy Index, CBOE Eurekahedge Relative Value Volatility Hedge Fund Index, and Eurekahedge Long Short Equities Hedge Fund Index. Results for equity long-short managers depended on their net long vs short tilt, sector concentration, and leverage.
Systematic Trend Programs had a mixed to slightly negative performance in June, with the most challenging markets being FX, short energies, and short ag commodities. Short-term traders had a difficult month, with "range breakout" types of systems being the most challenged.
The Article's Context
This article is a guest article under Hedge Funds - Managed Futures, copyrighted by The Sortino Group Ltd. The views expressed in this article do not necessarily reflect the views of AlphaWeek or its publisher. The style baskets mentioned are research tools created by Kettera Strategies for analysis and comparison purposes, not investible products or index products.
Discretionary macro managers maintained skepticism on the recent equities rally and expected the USD to strengthen. The best sectors for Systematic Trend Programs were equities indices and fixed income. Most FX programs had setbacks in June, with USD-based exchange rates and rates among the "big four" currencies being range-bound.
In summary, quant and systematic strategies aligned with current momentum trends likely performed well, discretionary macro managers navigate a mixed macro setting with USD strength, and long-short equity managers face style and sector concentration challenges. Short-term traders probably found opportunistic volatility, while broad diversification and active risk management remain crucial given the complex market environment.
- Investing in quantitative and systematic strategies, such as those employed by Kettera Strategies and their counterparts, may have been beneficial due to their tendency to capitalize on volatility and clear trend signals, particularly in the current market landscape where large-cap growth and momentum factors are driving the equities rally.
- Technology-driven systematic trend programs might have experienced limited gains during the U.S. equity market's rally, as the rally has been largely driven by a narrow set of sectors and factors, such as large-cap growth stocks and momentum factors.
