Trade Off: Keep It Easy (And Silly)

Whether current volatility continues, investors who may have shifted from passive strategies (net outflows emerged in Q2 2017) and allocated a portion into long/short or market neutral hedge funds are likely not regretting their decisions. For the year, investors have allocated an estimated net $13.67 billion into the industry. Investor flows accounted for a net inflow of an estimated $1.78 billion into hedge funds in April. A desire for credit exposure within EM provided the universe with net inflows in April. Investor flows were near flat, but positive in April. Macro fund flows returned to positive, though the minority of funds benefited. India funds, however, began the year in decline after closely following China in EM outperformance in 2017. Whatever the regional themes for 2017 which persisted into January 2018, it will be most interesting to watch how hedge fund strategies perform relative to their traditional peers if market volatility seen so far in February continues. Hedge fund returns have not been as broadly positive in nearly four years.

But these trends were insignificant in comparison to the action in the second half of the year, and especially the fourth quarter, where the big sell offs in energy markets, metals, and foreign currencies fueled one of the best quarters for trend followers in years. Over in the energy markets, natural gas experienced multiple volatile environments, with many blaming the “Polar Vortex” in the Midwest. How could these markets, which account for the economies of whole countries like Russia and whole regions like the Middle East, which hundreds of billions of corporate revenues are based on, and which are traded by professional speculators, producers, and big commodity players day in and day out; lose over half their value in just six months? This method worked extremely well this year in the Super Bowl when a runner dove over the goal line and fumbled the ball (click here to see the play).

When this fuse burnt itself out, trading would end for the day, and the day’s closing price would be determined (typically based on the last trade of the day.) This “fuse-cord price” would then be used as the starting price the next day, as well as the price used for marking-to-market and for settling contracts linked to the price of rice futures. As we like to say in our Thanksgiving Day post, option trading can be like the Turkey, fattened up day after day for the Thanksgiving feast, only to come to a sudden and abrupt end when they become the feast. 2013 were here to stay in 2014. That’s not to say the first half of the year was all bad. But suffice it to say 2014 was a good year for the strategy type, with many multi strategy mangers having made small but consistent gains for the majority of 2014, while participating in the same trades which benefitted trend followers at the end of the year: the short grain olymp trade promo code (check out this blog post via Encoinguide), short foreign currencies, short metals, and especially the short Crude Oil trade.

Multi-strategy programs typically have a trend following base, with other non correlated strategies (such as short term) added to their portfolio of models to perform during flat to losing periods in trend following. But overall, Managed Futures strategies proved that the noise is just noise. If we had to give a managed futures strategy MVP on the year, it would absolutely be Trend Following. We don’t know the answer to those questions – but we do know that this is what trend following is designed to do. Trending Following isn’t dead. Our dinners might be much blander, our gifts could be more expensive, and we might not know as many Christmas carols! Scientists don’t know what causes schizophrenia, but most likely it develops out of both genetic and environmental factors. A game can’t end in the middle of an inning, so even if you score the winning point, you’ll need to finish out the inning before calling the game. That said, there will be some applications that would need to be rewritten either because they use pre-compiles that the Type 3 ZK-EVM removes or because of subtle dependencies on edge cases that the VMs treat differently.

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