Market Trends for January 2018

2018 - CTAs off to the best start in YEARs!
2018 is off to a great start...period. January was a month that made many CTA investors smile again, regardless of whether they are exposed to short-term or long-term strategies. The strong start to 2018, comes after a challenging year for many managers in the space. This puts the Systematic Diversified CTA's in the Top 3 of the 20 or so hedge fund strategies tracked by Hedge Fund Research for the past 12 months...probably a bit of a surprise to many hedge fund investors who generally believe that other hedge fund strategies tend to do much better than CTAs. But it shouldn't come as a surprise to anyone. Because history shows that when these types of strategies have been "below par" for a while, they always come back with a roar! Now sure, we can spend time discussing what drove the performance, and we will further down in this post...but to some extent it does not really matter. At least not when you are a fully diversified, 100% systematic investment manager, who are not trying to predict the future. Yet most investors still prefer to invest in strategies led by charismatic managers who claim they know where the markets are going...i.e. who invest the "conventional" way. Why?Well, partly because investors prefer to be "conventionally" wrong instead of "un-conventionally" wrong according to Mohamed El-Erian, whom I saw speak at a conference in Miami this week.In other words, they would rather lose more by investing the "conventional" way (like most of their peers), than doing the right thing and invest how they should, using non-correlated strategies, because of the risk of losing during a period of time where their "conventional" peers would be doing better.
It's sad that this is the way most assets are invested on behalf of so many investors around the world.But hey...we can always hope that in a world where many "conventional" assets are perceived to be pretty fully priced, that investors will open their eyes (and portfolios) to other ways of extracting profits from the markets.
Now, let’s look at where the trend Barometer finished the month;

The number of markets recorded in a trending state increased from 19 to 23 during the month. Strong up-trends were recorded in Energy and Metals as well as many of the Currencies, whilst the Fixed Income markets turned in the strongest down-trends, in particular the US 10-year bonds (please note that I do not track the US 30-year bond, which probably would have shown the same development in January).

But it may surprise you to see that Stock markets, which put in a strong performance in January, are not part of this group of trending sectors. This is because not all of the stock markets that the Trend Barometer tracks, did as well as the US markets during the first month of 2018, which led to the overall sector not having a strong enough overall reading.I think it's good to see more sectors starting to participate from a trending perspective, so we don't end up relying on stocks to do all of the heavy lifting... There are still many CTAs that have not yet reached new all-time highs despite the strong start for the year...and as I'm a strong believe in that most if not all of them will reach this at some point, I'm optimistic about 2018...EVEN THOUGH, that with increased market volatility we should expect more volatility (Up and Down) in the performance of trend following managers. BUT remember, volatility and risk are not the same thing!


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. P.S. if you want to follow the Trend Barometer on a daily basis, please click here and if you want to see the list of Market Symbols explanations, please click here.Most Comprehensive Guide to the Best Investment Books of All Time

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