Stockholm (HedgeNordic) – Trend-following managers had a tough time navigating markets in August, as evidenced by the 4.5 percent decline in the SG Trend Index. However, Mandatum Asset Management’s trend-following managed futures strategy stood out as one of the stronger performers in the Nordics, delivering a 4.8 percent gain for the month.
Most trend-following CTAs held long positions in both bonds and equities leading up to the early August sell-off, and Mandatum Managed Futures Fund was no exception. While this positioning led to equity losses that were partially offset by gains in long bond positions, Mandatum’s fund distinguished itself by capturing profits not only in bonds but also in equities (and currencies). During the first three days of August, global equities dropped by 6.7 percent, but Mandatum’s fund still managed to deliver a positive one percent return. Ville Rantanen, Portfolio Manager for Mandatum Managed Futures Fund, credits this performance to the use of meta-models designed to override traditional trend models during periods of heightened risk of strong adverse price movements.
On the morning of the sell-off on Friday, August 2nd, Mandatum’s managed futures strategy exited long equity positions and initiated a mild short position in equities, simultaneously adding volatility futures to the portfolio. “The fund responded to the declining stock market by turning its equity exposure negative, benefiting from the stock market decline, while also adding VIX futures as volatility increased,” Rantanen explains in the fund’s August update to investors. “As the stock market rebounded, the fund started buying stocks and sold the VIX futures,” he continues. “Consequently, the fund was also able to benefit from the stock market recovery.”
“As the stock market rebounded, the fund started buying stocks and sold the VIX futures. Consequently, the fund was also able to benefit from the stock market recovery.”
Ville Rantanen, Portfolio Manager at Mandatum Asset Management.
The fund’s long positions in bonds also contributed positively to its performance. “Interest rates declined in August as investors aggressively priced in expectations of central bank rate cuts, especially in the United States,” says Rantanen. “The fund was long on bonds throughout the month and thus benefited from the positive development in the bond market.” The fund’s bond exposure ranged from a positive 48 percent to 145 percent, with an average of 88 percent throughout the month. The yield on the U.S. 10-year bond fell by about 13 basis points to 3.90 percent by month’s end, while the yield on the German 10-year bond remained stable at around 2.30 percent, with yields coming down at the shorter end of the yield curve.
“The fund was long on bonds throughout the month and thus benefited from the positive development in the bond market.”
Ville Rantanen, Portfolio Manager at Mandatum Asset Management.
Beyond equities and bonds, Mandatum Managed Futures Fund’s trend-following strategy also saw gains in currency markets. “The USD continued to weaken against major currencies. The fund’s average net weight in the US dollar was around -24 percent, and the fund benefited from the weakening USD,” explains Rantanen in the update to investors. Overall, equities, bonds, and currencies all contributed positively to the fund’s performance in August. The 4.8 percent gain for the month brought the fund’s year-to-date return to 14.3 percent. Since its launch in December 2019, the Mandatum Managed Futures Fund has delivered an annualized return of 8.6 percent, with correlations of 0.15 to global equities and 0.02 to bonds.
