May was another month characterized by reversals and cross-asset volatility. Strong momentum in U.S. equities contrasted with directionless moves across other markets, creating a challenging backdrop for systematic managed futures strategies. The NHX CTA Index ended the month of May slightly higher as profits in currencies and equities outweighed losses in energies and soft commodities, with performance varying across managers and sub-strategies depending largely on commodity exposure.

Last month, TSMOM, as measured by RPM’s Market Divergence Index (MDI), hovered around long-term average levels as the continuing rally in U.S. stock indices was offset by reversals and directionless fluctuations across other markets. In equities, a stellar U.S. jobs report and a blistering rally in chip stocks propelled U.S. equities to new record highs. However, in fixed income, fears of a lasting inflationary shock stemming from the Iran war sent global government borrowing costs soaring, with the 30-year U.S. Treasury yield reaching its highest closing level since 2007 before trends reversed again toward month-end.

In FX, the U.S. dollar performed yet another U-turn, drifting higher amid increasing economic divergence, persistent tensions surrounding the Iran war, and stronger-than-expected inflation data fueling speculation that the Federal Reserve could ultimately pivot toward raising rates rather than lowering them. In commodities, oil and gold prices swung wildly amid shifting sentiment regarding ongoing negotiations between the U.S. and Iran. Elsewhere, soybean markets also struggled to find direction, remaining highly sensitive to developments in U.S.-China trade talks and changing biofuel demand dynamics.

Sub-Strategies and Constituents in the NHX CTA Index

Nordic trend followers delivered mixed results. Lynx, Mandatum Managed Futures, and SEB Asset Selection all posted positive returns, primarily driven by gains in stock indices. Estlander & Partners Alpha Trend and Calculo Altus ended the month in negative territory, mainly due to losses in energies and soft commodities.

Non-trend managers within the NHX universe also produced mixed results. Machine learning-driven Lynx Constellation was up on the back of profits in currencies and equities, whereas short-term-oriented Epoque was broadly flat as losses in soft commodities offset gains in equities. Among global macro managers, Estlander & Partners Freedom ended the month in positive territory, whereas Lynx Systematic Macro was down mainly due to losses in currencies and equities. Volt Diversified Alpha was flat as losses in commodities were balanced by gains in financials. Multi-manager program RPM Evolving CTA Fund also finished broadly unchanged as underlying managers’ profits in stocks and currencies were offset by losses in energies and soft commodities.

Outlook

From a macro perspective, the U.S. economy is once again proving exceptional and resilient, at least for now. However, with inflation rising again, there appears to be limited room for interest rate cuts. As a result, current market optimism increasingly appears somewhat “inflated.”