A sharp escalation in geopolitical tensions set the tone for March, as the US and Israel’s attacks on Iran triggered significant cross-asset volatility. In this environment, Nordic CTAs as reflected by the NHX CTA Index declined modestly on aggregate, with gains in energy markets offset by losses in equities and fixed income. While performance varied widely across managers and sub-strategies, trend followers struggled on average, whereas non-trend strategies led performance.
At the beginning of last month, time-series momentum (TSMOM), as measured by RPM’s Market Divergence Index (MDI), slumped as many trends reversed following the surprise attacks by the US and Israel on Iran. For the remainder of the month, the MDI hovered slightly above average levels, as reversing trends in equities and metals were balanced by new trends in energy and fixed income markets. In equities, stock indices declined, while the VIX rose to levels not seen since last year’s “Liberation Day” announcement. This move was driven by a (very) disappointing US jobs report and concerns that the current disruption to oil supplies, combined with rising energy prices, could dent global growth and cause a major inflation shock that would deter central banks from further rate cuts.
In fixed income, yields moved higher as concerns that a sustained spike in oil prices would boost inflation outweighed the perceived role of bonds as a safe-haven asset. However, in foreign exchange, the US dollar strengthened significantly, primarily driven by haven demand amid the Iran war. In commodities, oil prices surged to above $100 per barrel after the massive attacks against Iran had raised fears of a wider regional war and a prolonged disruption to energy flows through the Strait of Hormuz.
In metals, gold and silver sold off massively and somewhat counterintuitively, as rising inflation expectations and dimming hopes of global rate cuts undermined their safe-haven status. Elsewhere, the soybean market experienced sharp initial gains, driven by a spike in soybean oil prices due to escalating Middle East tensions before retreating from its mid-month peak on bearish pressure from a record harvest in South America.
Sub-Strategies and Constituents in the NHX CTA Index
Against this backdrop, Nordic trend-following managers delivered mixed but overall negative performance. Calculo Altus, Estlander & Partners Alpha Trend, and Lynx generated positive performance primarily due to profits in energies. In contrast, managers with no commodity exposure such as Mandatum Managed Futures and SEB Asset Selection came under pressure from losses in equities and fixed income. While Mandatum Managed Futures posted a moderate decline, SEB Asset Selection experienced more pronounced losses and lagged peers.
Non-trend strategies fared better in aggregate, albeit with notable dispersion. Short-term-oriented Epoque was down, whereas machine learning-driven Lynx Constellation performed particularly well in the volatile market environment. Lynx Systematic Macro was a standout performer during the month with a return of nearly 15 percent, while Volt Diversified Alpha also posted positive returns, though less pronounced. In contrast, Estlander & Partners Freedom suffered significant losses. The multi-manager program RPM Evolving CTA Fund was also down, largely due to the underlying managers’ losses in equity and fixed income markets.
Outlook
Looking ahead, early signs of deceleration are emerging in the US economy, although there is no clear indication of an imminent recession. The full impact of the oil price shock remains uncertain, but macroeconomic divergence continues to widen. While a new trend environment may be forming, its persistence remains unclear. A new trend environment is emerging, but it is too soon to determine whether these trends will be sustainable.
