Choppy March favors Short-Term managers...
The return disbursement between Short-Term managers and Trend Followers narrowed a bit in the last month of Q1...but the gab still remain rather large so far in 2017.
Early indications show short-term managers putting in a small positive return for March (albeit still down quite a bit for Q1), whilst trend followers looks to end Q1 on a negative note. The broader index of CTA's is heading for a positive first quarter bucking the trend of the two sub-strategies.
Rising interest rates are a top-of-mind concern for investors right now. Inquiries about the impact of rising rates are among the most frequently asked questions from investors I have spoken to in recent months. There seems to be a lot of uncertainty (and in some cases, misconceptions) about the ability of CTAs to thrive in rising/ higher interest rate environments.
but when analyzing this question using data for the past 40+ years the results I found, were significantly more positive than expected...
...if you would like to see the results of this analysis...just reach out to me
Firstly, let’s look at where the trend Barometer finished the month;
At the finish line for Q1, the Trend Barometer closed for the 3rd month in a row below the break-even point of 45, which means that objectively speaking, the last 3 months have not be a good environment for trend following strategies.
So I would say that any trend follower that come out of Q1 with a positive return have done a very good job.
Just 10 markets recorded some kind of trending behavior at the end of March, pretty much divided between Stocks (heading up) and Grains (heading down)
Added to this mix we saw the Mexican Peso, Aluminum and Sugar also exhibiting some level of trending behavior.
The next chart below shows a snapshot of a 44-market portfolio with markets listed in “groups” of market sectors;
The number of markets recorded in a trending state decreased from 12 to 10 during the month. It has certainly been a while since we last saw a broad based trending environment across multiple sectors
In the chart below, I have grouped the markets into 10 sectors. Since last month, the number of sectors exhibiting an overall trending state increased to 2 out of 10 sectors, mainly because most of the 10 markets trending, fall in to these two sectors.
As we have seen so many times before, when trends have been few and far between, its time to prepare for the next increase in trending behavior...
...but as we have also seen many times before, predicting the timing of this increase is very difficult and thus more and more investors accept that when it comes to trend following, you simply need to have it as a core allocation in your portfolio, and not spend time trying to time it
The last chart shows the evolution in the Trend Barometer since January 2015.
The daily reading of the Trend Barometer, shows very limited periods of strong sustained trends in the last couple of years...which is consistent with the mixed results in 2015 and 2016.
March was really a roller-coaster ride for the trend barometer in March...and in fact some trend followers saw their return for the month turn positive towards month-end, only to see it turn down on the last day of trading.
Clearly many markets are in limbo because of the political uncertainly on both sides of the Atlantic...but hopefully Q2 will give us some of the answers that we have been waiting patiently for!
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.