In April, the NHX CTA Index delivered a positive return despite multiple trend reversals following the fragile ceasefire between the U.S. and Iran. Performance was mixed across managers and sub-strategies, depending on whether gains in equities were sufficient to offset losses in fixed income and commodities.
In the first half of the month, time-series momentum (TSMOM), as measured by RPM’s Market Divergence Index (MDI), plunged amid a series of trend reversals triggered by the ceasefire. In the second half, the MDI stabilized around long-term average levels, as a strong equity rally was offset by largely directionless movements in commodity markets. In equities, U.S. stocks surged to new record highs following the announcement of a two-week ceasefire, supported by strong corporate earnings and investor optimism around a potential U.S.-Iran peace agreement.
In foreign exchange (FX), the U.S. dollar reversed course and depreciated significantly against a basket of currencies after weaker-than-expected economic data. Elsewhere, after weakening to beyond ¥160, the Japanese yen strengthened by more than 2.5 percent against the dollar toward month-end, amid reports of intervention by Japanese authorities. In fixed income, yields remained broadly unchanged as investors balanced rising inflation expectations against signs of economic slowdown. In commodities, oil prices initially declined sharply following the agreement to reopen the crucial shipping chokepoint in the Strait of Hormuz before rebounding to $110 a barrel as Washington and Tehran appeared to make little progress towards a peace deal that would unlock energy supplies through said Strait. Cotton prices, meanwhile, rallied to an 11-month high, driven by supply concerns in the U.S. and stronger demand.
Sub-Strategies and Constituents in the NHX CTA Index
Nordic trend-following managers delivered mixed results. Estlander & Partners Alpha Trend, Lynx, and SEB Asset Selection generated solid returns, supported by gains in rebounding equity markets. In contrast, Mandatum Managed Futures ended the month in negative territory, primarily due to losses in fixed income, while Calculo Altus declined amid a lack of sustained trends in commodity markets.
Most non-trend managers within the NHX universe posted positive returns. Short-term-oriented Epoque and machine learning-driven Lynx Constellation finished the month in positive territory. Within macro strategies, Estlander & Partners Freedom, Lynx Systematic Macro, and Volt Diversified Alpha all delivered gains, primarily driven by long positions in equities and soft commodities. However, the multi-manager program RPM Evolving CTA Fund declined, as losses in fixed income markets among underlying managers outweighed gains in equities.
Outlook
From a macroeconomic perspective, the U.S. economy appears to be entering a slowdown while inflationary pressures are re-emerging. If the war drags on, the ongoing deceleration could intensify, leaving limited room for the anticipated rate cuts. Thus, the current bullish market environment appears quite fragile.
