Rebound in Commodities Drives Trends in April
Commodities took center stage in April with a big shift in "trend sentiment" compared to the beginning of the year, where most commodities fell steadily.
This may well turn out to be a big divider in performance of CTAs and trend followers, as those with very diversified portfolios and a healthy allocation of risk towards commodities, should have found April a more challenging month than financial-only or financial-heavy managers!
"In fact only 1 of 26 commodity markets tracked by the Trend Barometer, ended April with a Down Trend reading...the rest were trending Up or stuck in Neutral"
As with any period of transition, the investment horizon of the individual managers will also be very important in determining how well or how bad they dealt with a period like March and April...but one thing is for certain...real trend followers will be expected to lose money in April, just like they did in March.
OK...now back to the Trend Barometer which on a closing basis ended the month of April just above the Break-Even point.
Firstly, let’s look at where the trend Barometer finished the month;
But despite of a month-end reading of 50 for the Trend Barometer, the fact is that most of the month was spent below 45 (the break even point) and the last few days of better trend environment was not enough to pull the overall performance in to the black...but it certainly trimmed some of the intra-month losses.
The next chart below shows a snapshot of a 44-market portfolio with markets listed in “groups” of market sectors;
Whilst March finished with only BeanOil in an Uptrend, April saw most Energy markets (except Nat Gas), Base & Precious Metals as well as Agricultural and Soft commodities follow suit. In fact, Live Cattle, was the only market that ended in a Down Trend, as measured by the Trend Barometer.
In the chart below, I have grouped the markets into 10 sectors. 3 out of 10 Sectors finished the month in a trending state (Currencies, Energies and Precious Metals), with Precious Metals by far the strongest trending sector.
It was interesting to see that the Stock Index sector, which most investors tend to focus on, ended the month, completely "trend-less"
The last chart shows the evolution in the Trend Barometer since January 2015.
The month of April started off well-below the "break-even" level of 45% in the Trend Barometer, extending the difficult environment we saw in March, BUT...
with the surge in the Trend Barometer kicking in towards the month-end, and with the BREXIT vote next month, I can't help think that this may be the beginning of a renewed increase in Volatility and perhaps more consistent trends to follow...which may make trend following, the strategy to be in as we head into the Summer!
As the Saying goes in the Equity Markets...SELL in May and GO AWAY!
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS
I hope you found the information useful as part of your own evaluation of the trend following part of your investment portfolio. I will continue to do my best to keep you up-to-date with regards to the environment for diversified trend following strategies and would love to discuss any of this information with you. Just reach out to me.