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Bank Turmoil Hits Most Nordic CTAs

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Stockholm (HedgeNordic) – After a successful 2022, the first quarter of 2023 and the month of March, in particular, offered a challenging market environment for both Nordic and global trend-following CTAs. Nordic CTAs were down an estimated 4.7 percent on average in March, with many trend-followers wrong-footed during the week of wild gyrations in the bond market caused by the collapse of Silicon Valley Bank and Signature Bank. Some funds, however, managed to avoid the turmoil.

Wavebreaker, a hybrid of systematic trend-following and discretionary macro, ended the month of March up about 1.0 percent. “March of 2023 is a good example of how we sometimes use our discretionary macro framework to scale down risk exposure in our trend-following CTA in light of evolving fundamentals,” explains Lars Wind, the CIO of Wavebreaker. “We were getting increasingly concerned about the deposit contractions in the US and strongly believed this would and will lead to a broader credit cycle downturn,” he elaborates. “The evolving risks in the banking sector and more broadly in credit more than balanced out the still problematic inflation picture.”

“March of 2023 is a good example of how we sometimes use our discretionary macro framework to scale down risk exposure in our trend-following CTA in light of evolving fundamentals.”

As a result, Wind and his team at Wavebreaker took the discretionary decision to hedge the short fixed-income exposure in its trend models and thus avoided the large losses experienced by other trend-following peers. Epok of Martin Redgård also ended the month of March in positive territory at 0.4 percent.

Redgård, most recently CIO at US-based CTA manager Taaffeite Capital Management, took over the management of Tenoris One – renamed into Epok – at the turn of the year to run a short-term systematic trend-following strategy. He relies on a short-term quantitative approach to capture opportunities stemming from momentum, price action, and breached significant price levels across G20 currencies and major stock market indices. His fund has advanced 5.1 percent since the beginning of the year.

Reversal of Fortunes

After enjoying one of their best-ever years in 2022, the remaining group of Nordic trend-following CTAs experienced a difficult market environment in March. Lynx Asset Management’s trend-following program, which enjoyed its second-best annual performance in 2022 with an advance of 35.9 percent, booked a loss of 9.2 percent in March. “Short positions on the shorter end of the yield curves in the US and Germany were particularly unprofitable as investors reassessed the tightening trajectory of the Fed and ECB” following the failure of Silicon Valley Bank early in the month.

Mandatum Managed Futures Fund, which uses machine learning algorithms that select the right combination of momentum-based models for a given environment, also experienced a difficult March after booking gains of 11 percent and 10.4 percent in 2022 and 2021, respectively. Mandatum Asset Management’s managed futures vehicle was down 8.2 percent during March. Estlander & Partners’ legacy trend-following strategy Alpha Trend, meanwhile, booked a monthly loss of 7.6 percent in March following a 10.2 percent advance in 2022.

SEB’s quant-driven trend-follower, SEB Asset Allocation, was down 5.9 percent in March of 2023 to bring its first-quarter performance into negative territory at 4.5 percent. The fund managed by SEB’s Quantitative Strategies and Liquid Alternatives team, with Otto Francke and Mikael Nilsson as lead portfolio managers, gained 16.3 percent in 2022 to achieve the fund’s third-best year on record since its launch in 2006.

RPM Evolving CTA Fund, which invests in a small group of young and evolving CTA managers, ended the month of March down 5.6 percent. The fund gained 24.4 percent during 2022, the fund’s best yearly performance since launching in mid-2013. Estlander & Partners’ other vehicle, Freedom, also incurred a loss of 5.8 percent in March after booking heavy losses in 2022.

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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