Stockholm (HedgeNordic) – Managed futures and trend-following funds, known for their quantitative techniques in capturing price trends, delivered strong returns last year. However, conditions for trend followers in 2023 have proven to be considerably more challenging. Amid a difficult first half for the universe, some recently launched – yet experienced – trend-followers from the Nordics, such as Epoque of Martin Redgård, have managed to perform well.
Epoque employs a short-term-focused approach to capitalize on momentum, price action, and breached significant price levels across G20 currencies and major stock market indices. The trend-following fund returned 6.8 percent in the first half of 2023. In contrast, the other nine players in the pool of Nordic CTAs ended the first half of the year with an average decline of 2.9 percent. Martin Redgård, formerly the CIO at US-based CTA manager Taaffeite Capital Management, attributes Epoque’s stronger performance compared to classical trend-following to the short-term holding periods and the mix of both trend-following and mean-reversion strategies.
“2023 so far has mostly been a mean-reverting market, especially in currencies.”
“2023 so far has mostly been a mean-reverting market, especially in currencies,” explains Redgård. “When the overall temperature of the market is not very clear and we experience a consolidating market that neither continues nor counters a long-term trend, mean-reverting strategies help avoid large givebacks,” he emphasizes. Classical longer-term trend-following strategies typically experience inevitable givebacks after periods of strong performance driven by long-lasting trends. “In this year’s consolidating market, mean-reverting strategies performed better than trend-following.”
Redgård clarifies that he is “not married to either trend-following or mean-reverting strategies,” and he uses mean-reversion positions occasionally as a hedge to his trend-following positions. “The combination of strategies acts as a tool to bring down the fund’s return volatility,” explains Redgård. Additionally, his short-term approach has set Epoque apart from longer-horizon trend-followers in 2023.
Short-Term Nature of the Strategy
“The short-term nature of the strategy is one of the main differentiators from more classical trend-following,” elaborates Redgård. His intra-day entry and exit approach, with a four-hour reconciliation of positions, contributed to Epoque’s 6.8 percent advance in the first half of 2023. “The more longer-term focused a trend-follower is, the closer the strategy gets to the underlying market beta,” he emphasizes. While Redgård points out that his trend-following strategy is not overly complex, he sought to bring something different to the universe of trend-followers. “This is a strategy for both retail and institutional investors, a strategy that exhibits low correlation to equity markets and even to other trend-followers this year,” he adds. However, he still remains a traditional trend-follower who has added a mean-reversion flavor to the strategy.
“The short-term nature of the strategy is one of the main differentiators from more classical trend-following.”
Martin Redgård took over the management of AIFM Group’s multi-asset fund Tenoris One – renamed into Epoque – at the turn of the year to run his short-term systematic trend-following strategy. With AIFM recently receiving approval for fund regulation changes for Epoque, Redgård now has the freedom to add commodities to his trading universe, which currently consists of G20 currencies and major stock market indices. “Commodity markets are favorable to trend-following and have always been part of my approach,” says Redgård. The expansion of the tradeable market provides Redgård more opportunities to identify and capture trends or mean-reverting opportunities.
The recent approval to fund regulation changes by the Finansinspektionen also enables Redgård to increase the risk-return profile of the fund by a factor of 1.5. “Investors need a higher risk-return profile to act as a diversifier to their long-only portfolios,” he claims. His stringent risk management strategy, involving predetermined stop-loss levels on each bet and volatility-weighted risk allocation, positions Epoque to capitalize on the asymmetric upside potential offered by his trend-following strategy.