April was an interesting month, with some Trend Following CTA making strong returns. Some Crypto managers have staged a strong comeback in 2023, but the majority of them are still in a severe drawdown. We also note strong performance from equity beta-driven strategies, with some nice results for Equity Long/Short strategies.

Based on the most recent return data that we have available, we can provide a comprehensive overview of the top-performing and worst-performing strategies for each category, taking into account both monthly and yearly results. Our analysis is based on proprietary composite data streams that we have compiled, but we must note that there is always the possibility of errors or inaccuracies in our calculations.

CTA

To explore the full list of CTAs and their rankings, including dynamic updates as new data becomes available, we invite you to visit our website using this Link. Here, you will find a wealth of information on the performance of different CTAs across a range of markets and strategies, as well as insights and analysis from our team of experts in the field. 

Market Neutral

Market Neutral is a popular strategy among investors due to its low volatility and steady returns over time. Unlike other strategies that may produce large gains or losses in a short period, Market Neutral tends to accumulate returns gradually over time. This makes it an attractive option for those looking to achieve steady, long-term growth without taking on excessive risk.

To explore our extensive list of Market Neutral funds and their dynamic rankings, we invite you to visit our website at the link provided here. Here, you will find a wealth of information on the performance of different funds, as well as insights and analysis from our team of experts in the field. Whether you are a seasoned investor or just starting out, our Market Neutral rankings can provide valuable guidance and help you make more informed investment decisions.

Equity Long/Short

Equity Long/Short strategies are investment approaches that involve taking both long and short positions in equities in order to potentially profit from the performance of individual stocks or the broader equity markets. 

To explore our extensive Equity Long/Short list, with dynamic rankings, please see Link

Event Driven

Event-Driven managers are commonly exposed to various arbitrage/spread risks related to specialist situations securities. Managers with concentrated exposure tend to end up on this list and exploring the drivers of out or underperformance may yield insights.

To explore our extensive Event-Driven list, with dynamic rankings, please see Link

Fixed Income

Similar to Equity Long/Short managers, Fixed Income managers are typically influenced by the underlying market conditions. However, for this list, the focus is on managers who are sensitive to a specific subsector of the fixed-income market, particularly those engaged in the lowest part of the capital structure.

To explore our extensive Fixed Income list, with dynamic rankings, please see Link

Risk Premia

Risk Premia managers are commonly implemented well-explored and researched systematic strategies. These may be viewed as a general proxy for Hedge Fund exposure. Performance of specific factors may reveal differences and similarities to your own portfolio. To explore our extensive Risk Premia list, with dynamic rankings, please see Link

Crypto

As usual Crypto tends to have the most volatile numbers. Returns tend to be double-digit (or even triple-digit for the best funds and for obvious reasons rarely more than double digits for the worst ones), simply due to the volatility of the asset class. To explore our extensive Crypto Strategy list, with dynamic rankings, please see Link

Past performance is not indicative of future results.

It is important to note that our rankings are not filtered for Asset Under Management, meaning that funds of any size can be included in our analysis. Our rankings are based solely on a simple return metric without adjusting for volatility, so some funds may have a higher risk profile than others.

To be included in our rankings, funds must have reported returns for the current reporting month. This means that we may not have data on all funds in a given category, and our rankings should be considered within the context of the funds that we do have information on.

Overall, our analysis provides a useful starting point for investors who are looking to compare and evaluate different investment strategies. It is important to keep in mind that no single metric or ranking can capture all of the nuances and complexities of the investment landscape, and investors should conduct their due diligence and consult with financial professionals before making any investment decisions.

 

As we probably have told you countless times, we are providing a range of specialized Hedge Fund indices. These are useful for investors that need to benchmark managers. And for managers to gauge how they are doing compared to their average competitor. Some of our indices go back to the inception of the database, while others are more recent innovations.

The construction method is the same across all of our indices, we use our own proprietary classification methodology, to sort through a wide variety of strategies. We slice and dice the numbers to arrive at a set of interesting observations. What is particularly unique about the way we construct the indices, is that they are forgiving and allow managers to be re-included if they restart reporting.

If a manager temporarily stops submitting data, and then at some later point restarts reporting, we update our historical records. While this prevents the indices from being investable, the flipside is that they may be somewhat more representative than indices that do not revise historical data. But, we do not allow managers to backfill data as some indices out there do.

A proprietary feature in the datasets that we maintain is that they are time-stamped and we can track the evolution of a particular manager over time. In this case, we take a closer look at the NilssonHedge CTA index, our broadest representation of Managed Futures performance. In the chart above we plot how the cumulative returns looked at various dates.

A feature that is part of the design principles of the NilssonHedge Indices is that we are fully transparent about the constituents of each index, and also why they are included. Not only on a snapshot basis but since the inception of the index. This allows you to recreate the performance of the index and verify that our calculations are reasonable.

The indices are reconstituted annually, and managers are included as long as they are offering timely return reporting.

Due to a change in how we stored and distributed the index data, we only started tracking our Index as of mid-2021 (a shoemaker's son always goes barefoot). We note that in general, looking at the data over time, there are relatively few revisions and they tend to take be neutral in terms of performance.

The other interpretation is that liquid strategies seldom have a need to substantially revise their numbers.

We take a look at our competitor's data and find that there have been substantial deviations over time. Here there is something else going on. Something was substantially altered in the performance data of the underlying strategies.

To their credit, there is only one major revision over the last five years, indicating that either a manager was excluded, or that a manager revised their track record substantially. The devil is in the detail, but Hedge Fund indices are hardly static and may change substantially over time.

We do not guarantee that this cannot happen to our indices, but we would at least be able to transparently point to which managers revised their numbers.

Thus, it is not only important to understand how a particular manager works and the individual drawbacks of a specific strategy. It is also important to understand how the benchmarks you are using are constructed, and how they may change and update over time. There are substantial revisions for some indices. Our databases allow for these types of research and may be a valuable tool when you are doing manager research.

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Like many other strategies, CTAs made a comeback after the tumultuous March. With the exception of a few hard-to-mark asset classes (Private Debt, Private Equity, and Infrastructure) CTA led the pack with a return of 1.1% (based on 46% reporting). This takes the loss for CTAs to do a minor 70bps for 2023. The NilssonHedge CTA index is showing slightly better numbers, but that is partly due to which managers have reported and which managers are included in the indices.

Thanks to a strong January, Crypto Strategies are still ahead of the pack with a 35% return for the year. Although not much has been happening since January. The NilssonHedge Crypto Index shows the impact of the difficult conditions throughout 2022 with a large turnover amongst the eligible managers.

In the CTA sector, on a year-to-date basis, strategies with a bend toward less focus on Trend Following have done better. We note that the median performance is marginally positive for other strategies.

For April, the story is more positive for the Trend Followers brethren and sistren with better numbers. So far, based on approximately half of the managers reporting data, more than 75% of them have positive numbers.

A close relative to the CTAs is the risk premia strategies. Occasionally these deploy trend-following strategies but typically access a much broader set of set strategies, including factor risk premia in equities and other asset classes.

The strategy had a big awakening during the Covid Crisis where “Equity Risk Premia” caused the strategy severe losses. During this time, several strategies shut down or retooled. The NH Risk Premia index is printing moderately positive numbers and has seen a good run over the last two years.

As per usual, our databases are updated and we have coverage of 1400+ strategies with April-23 numbers. Feel free to explore the free parts of the Database, for instance, the CTA Ranking report offers a quick way to assess how your Managed Futures portfolio is doing compared to peers.

Thanks for reading, and please feel to reach out to us, to see how we can help you with performance data.

CTAs managed to claw back returns and returned 1.5% for April. This is approximately a third of the exceptional speedy drawdown in March and is a sign that some positions are still in place for CTAs. The NilssonHedge CTA index is still down 2.1% for the year.

While Crypto Strategies has done the best on a year-to-date basis, most of the initial hoorah was in the initial part of the year, as the market renormalized. After that, we have had some spurts of performance, but the index has largely whipsawed.

In the wake of a relatively quick banking crisis (with the recent news with regards to “First Republic” it can be argued that it is still ongoing), Equity Long/Short strategies have benefited from the positive drift in equities. Event and Market Neutral have remained somewhat related but are slightly positive for the year.

In terms of exposure, and while imperfect compared to running actual models, it gives a general indication of what changed after the Trend-Following reversal in March. Equity positions have remained largely intact and short bond positions have been squared.

We also note that the USD debasement trade has picked up steam, as CTAs are generally short the USD against a basket of currencies. Up until last year, this was generally a long position. In other sectors, we do not see a high correlation. Here, it can be observed that correlation during reversal may tell us more about the tendency for markets to behave in one way rather than telling us a lot of individual exposures.

Next week, we expect to have a slew of return estimates for April. Stay tuned. To get the email directly in your inbox, feel free to subscribe to our weekly updates.

March turned out to be a strange month, a short-lived banking crisis heavily influenced the result for trend-based trading strategies but did not impact the overall performance of other strategies.

Overall, our rankings provide a useful starting point for investors who are looking to compare and evaluate different investment strategies. However, it is important to keep in mind that no single metric or ranking can capture all of the nuances and complexities of the investment landscape, and investors should conduct their due diligence and consult with financial professionals before making any investment decisions.

All data is believed to be reliable, but cannot be guaranteed to be correct.

CTA

March 2023 was a month where the winners of 2022 gave back profits. We note that several of the best-performing systematic managers are now ranking close to the bottom of the list. In the end, the exposure to fixed income turned out to be the major determinant of March’s performance.  Here it should be noted that investors that have maintained exposure to those strategies, since early 2022, are still up significantly. 

By studying the performance of individual CTAs, investors can gain a deeper understanding of the various factors that contribute to success in this space, including risk management, diversification, and the ability to adapt to changing market conditions. 

To explore the full list of CTAs and their rankings, including dynamic updates as new data becomes available, we invite you to visit our website at the Link provided. 

Market Neutral

Market Neutral is a popular strategy among investors due to its low volatility and steady returns over time. Unlike other strategies that may produce large gains or losses in a short period, Market Neutral tends to accumulate returns gradually over time.

While the average performance of Market Neutral funds is largely driven by factor performance, there are also specific funds that may be exposed to unique strategies that are not captured by academic factors.

To explore our extensive list of Market Neutral funds and their dynamic rankings, we invite you to visit our website at the link provided here. 

Equity Long/Short

Equity Long/Short strategies are investment approaches that involve taking both long and short positions in equities in order to potentially profit from the performance of individual stocks or the broader equity markets. 

Therefore, while the performance of Long/Short equity strategies is influenced by the broader equity markets, the best and worst managers are typically those who are able to identify and capitalize on idiosyncratic security-specific situations, as opposed to simply relying on market trends.

To explore our extensive Equity Long/Shortlist, with dynamic rankings, please see Link

Event Driven

Event-Driven managers are commonly exposed to various arbitrage/spread risks related to specialist situations securities. Managers with concentrated exposure tend to end up on this list and exploring the drivers of out or underperformance may yield insights.

When a manager has concentrated exposure to a particular event or company, they may end up on a list of top performers or underperformers in the Event-Driven strategy. Exploring the drivers of their outperformance or underperformance may yield insights into the effectiveness of their investment approach.

Our Event-Driven list can be explore here: Link

Risk Premia

Risk Premia managers are commonly implemented well-explored and researched systematic strategies.

These may be viewed as a general proxy for Hedge Fund exposure. Performance of specific factors may reveal differences and similarities to your own portfolio. To explore our extensive Risk Premia list please see Link

Crypto

Crypto managers are performing in the first quarter of 2023, erasing some of the losses suffered in 2022.

Returns tend to be double-digit (or even triple-digit for the best funds), simply due to the volatility of the asset class. To explore our extensive Crypto Strategy list, with dynamic rankings, please see Link

Past performance is not indicative of future results. Based on the most recent return data that we have available, we provide an overview of the best and worst-performing strategies for each category, taking into account both monthly and yearly results. Our analysis is based on proprietary composite data streams that we have compiled, but we must note that there is always the possibility of errors or inaccuracies in our calculations. 

It is important to note that our rankings are not filtered for Asset Under Management, meaning that funds of any size can be included in our analysis. Our rankings are based solely on a simple return metric without adjusting for volatility, so some funds may have a higher risk profile than others.

Nilsson Hedge provides a CTA/Managed Futures and Hedge Fund database at a competitive price. The median manager is a CTA or Managed Futures Managers, but we also cover more traditional strategies such Equity Long/Short. We have almost twelve thousand return streams that are used to create a comprehensive intelligence source for Hedge Fund Performance.

While initially starting out as a CTA/Macro focused database, we are now covering a large amount of more traditional Hedge Fund strategies. Today, of the active strategies, 1/3 are CTAs. We are much more than a CTA database.

Based on the data that we have in the database, we have the following estimates for strategy performance:

• The estimated MTD performance for Hedge Funds (including Crypto Trading Strategies) is -0.0% taking the YTD number to 6.6%.
• The estimated MTD performance for Hedge Funds (excluding Crypto Trading Strategies) is -0.7% taking the YTD number to 0.7%.The estimated MTD performance for CTAs is -1.6% taking the YTD number to -0.7%.
• We note that this is an estimate for reporting funds, and that better performing funds typically report early. These estimates do not include funds that have stopped reporting. For the survivorship adjusted number, we would like to direct you to the NilssonHedge indices at https://nilssonhedge.com/index/.
• As pointed out, Trend following strategies suffered in March. More info can be found here: https://nilssonhedge.com/reports/dispersion/

Explore our overview of Hedge Fund performance at https://nilssonhedge.com/reports/nilsson-report/

• The Database contains 2947 different managers, representing 5960 different investment strategies.
• For the current reporting month, 1704 managers have reported returns. For the prior month, we have 2054 live managers.
• In terms of CTAs, for the current reporting month, 460 CTA programs have reported returns. For the prior month, we have 660 live programs.
• In total, the database contains 35652 years of manager data.
• We cover 705 bn of Assets in the Hedge Fund space. Out of which 423 bn of Assets in CTA/Managed Futures managers.
• With more than 400,000 unique data points this is an interesting resource for academics and students. We offer free access to academic researchers.

Over the last three calendar months, we have added 137 new strategies to the database.

• Database overview, including graveyard:
• Number of CTA Strategies: 3167
• Number of Equity Long Short Strategies: 454
• Number of Market Neutral Strategies: 130
• Number of Event Driven Strategies: 80
• Number of Fixed Income Strategies: 208
• Number of Crypto Strategies: 975
• Number of Asset Allocation Strategies: 212
• Number of Risk Premia Strategies: 78

To view estimates of current performance, our daily indices provide unique insights (https://nilssonhedge.com/index/daily-indices/). CTAs are staging a comeback in April.

Thansk for your attention! Your support is much appreciated.

First, we wish you all a Happy Holiday. Furthermore, we hope the testing times that Trend Following strategies endured in March enables the strategy to successfully resurrect during the rest of the year. As we are collecting more and more returns for March-22, we are getting a clear picture of how different strategies faired.

While not halfway through the month, we have close to 50% of the managers reporting numbers. There may be some early reporting bias in our numbers, but we believe it gives a reasonable picture.

Long story short, as long as you did not engage in trend following you actually did pretty ok. Unfortunately, a large amount of the larger managers are focused on Trend Following strategies in the more liquid markets.

While most Hedge Fund strategies have generated positive results YTD, the March Madness in Fixed Income markets, has caused the Q1 results for CTA to lag the other strategies.

To explore the managers that are captured so far, please check out our Ranking Page (login required).

Looking through the data, we note that most of the negative outliers are indeed Trend Following strategies. Other strategies had much more mixed results, with an average flat result for March. Finally, a month where diversification paid off. Given that March was not a particularly eventful month for Equity markets, option strategies faired well.

In terms of indices, our broad-based CTA index is down 1.5%. From a longer perspective, almost half of the inflation-driven pnl generated in the early half of 2022 has been given back. A lot of positions got reset over the last couple of weeks and CTAs are likely completely out of short fixed-income positions.

Strangely enough, the picture is similar for discretionary managers. Not the same pattern, but while uncorrelated, Discretionary managers have also faced difficult trading conditions post the half-year mark in 2022.

Commodity Specialists, which got a fair amount of positive attention in the last weeks. For instance, this report (by Bridge Alternatives) has so far reported a flat return, despite difficult trading conditions in several commodities. Commodity Specialists has had an exceptional run during the last four years and it may have been the most Sharpe Ratio efficient strategy over a tumultuous period.

As usual, our databases are updated and available for download.

March turned out to be an exciting month, but ultimately it was much ado about nothing. Except for some Macro funds that had a strong view on continued inflationary pressures, CTAs were the largest victim of the intra-month banking crisis. For a short moment, the ghosts of the Great Financial Crisis were reborn, but swift regulatory action managed to stave off contagion and systemic risk pressures. In the end, equities continued to climb a wall of worries.

In short:

• Equities had positive returns, despite a banking crisis (Silicon Valley Bank, Credit Suisse, …).
• Treasury Bonds strengthened significantly as capital was moved into less risky assets.
• Commodities had a difficult month with the Energy Complex suffering.
• The USD weakened, which is rather unique in a crisis scenario.
• CTA, being largely short Fixed Income suffered as many Macro Funds, Corporate Treasurer, and Risk Managers bought “risk-free” assets.
• Despite a risk-off sentiment, Crypto strategies had positive returns

Our more traditional Liquid Alternative Indices faired rather ok in the first quarter. Equity Long/Short, Market Neutral, and Event Driven strategies are positive for the year. CTAs ended the first quarter with a significant drawdown.

Index	March	YTD
Crypto	3.3%	38.9%
CTA	-4.7%	-3.6%
Equity Long/Short	0.5%	1.9%
Market Neutral	-0.6%	0.0%
Event Driven	-0.3%	0.5%

Next week, we will have a clearer picture of which CTAs lost and who managed to navigate the rapidly reversing Bond Markets. We note that CTAs are now likely scaled out of Bonds, slightly less exposed to Equities due to the increased volatility.

Using four simple Breakout Strategies to judge direction, we note that CTAs rapidly exited the short bond trade. The truly long-term trend followers may still be short-biased in bonds, but most other managers have flipped to a long position. This has happened before and will happen in the future. Trend following is not dead, but shaken.

Back to our regular programming and we are pleased to share our ranking of liquid alternative strategies. While much will have changed once the March numbers start to trickle in a few days, we should enjoy the successes that some managers have been able to achieve.

Based on the most recent return data that we have available, we can provide a comprehensive overview of the top-performing and bottom-performing strategies for each category, taking into account both monthly and yearly results. Our analysis is based on proprietary composite data streams that we have compiled, but we must note that there is always the possibility of errors or inaccuracies in our calculations.

To be included in our rankings, funds must have reported returns for the current reporting month. This means that we may not have data on all funds in a given category, and our rankings should be considered within the context of the funds that we do have information on.

Additionally, if you find our analysis and insights valuable, we encourage you to sign up for our email list. By subscribing, you will receive regular updates and exclusive content related to investment strategies and market trends, which can help you stay informed and make better-informed investment decisions.

To sign up, simply visit our website and provide us with your email address. We promise not to spam you or share your information with third parties, and you can unsubscribe at any time. Don’t miss out on this valuable opportunity to stay ahead of the curve in the ever-changing world of finance.

CTA

It is worth noting that while the general Commodity Trading Advisor (CTA) industry tends to be trend-driven, there are always outliers that are driven by specific markets or market effects. This can make for a high degree of dispersion among the best and worst-performing funds within a given category, but it can also provide valuable insights into how different strategies react to different market developments.

By studying the performance of individual CTAs, investors can gain a deeper understanding of the various factors that contribute to success in this space, including risk management, diversification, and the ability to adapt to changing market conditions. This can be particularly useful for those who are looking to build a diversified portfolio of alternative investments, as CTAs can offer a source of non-correlated returns that can help to balance out risk in traditional asset classes.

To explore the full list of CTAs and their rankings, including dynamic updates as new data becomes available, we invite you to visit our website at the Link provided. Here, you will find a wealth of information on the performance of different CTAs across a range of markets and strategies, as well as insights and analysis from our team of experts in the field. Whether you are a seasoned investor or just starting out, our CTA rankings can provide valuable guidance and help you make more informed investment decisions.

Market Neutral

Market Neutral is a popular strategy among investors due to its low volatility and steady returns over time. Unlike other strategies that may produce large gains or losses in a short period, Market Neutral tends to accumulate returns gradually over time. This makes it an attractive option for those looking to achieve steady, long-term growth without taking on excessive risk.

While the average performance of Market Neutral funds is largely driven by factor performance, there are also specific funds that may be exposed to unique strategies that are not captured by academic factors. This can create opportunities for investors to gain an edge by identifying and investing in funds that are able to deliver above-average returns due to their specialized knowledge or approach.

To explore our extensive list of Market Neutral funds and their dynamic rankings, we invite you to visit our website at the link provided here. Here, you will find a wealth of information on the performance of different funds, as well as insights and analysis from our team of experts in the field. Whether you are a seasoned investor or just starting out, our Market Neutral rankings can provide valuable guidance and help you make more informed investment decisions.

Equity Long/Short

Equity Long/Short strategies are investment approaches that involve taking both long and short positions in equities in order to potentially profit from the performance of individual stocks or the broader equity markets. As per common knowledge, it is believed that approximately half of the returns for these strategies are influenced by the underlying equity markets.

This means that if the equity markets are performing well, then a Long/Short equity strategy is likely to produce positive returns, and if the markets are underperforming, the strategy is likely to produce negative returns.

Therefore, while the performance of Long/Short equity strategies is influenced by the broader equity markets, the best and worst managers are typically those who are able to identify and capitalize on idiosyncratic security-specific situations, as opposed to simply relying on market trends.

To explore our extensive Equity Long/Shortlist, with dynamic rankings, please see Link

Event Driven

Event-Driven managers are commonly exposed to various arbitrage/spread risks related to specialist situations securities. Managers with concentrated exposure tend to end up on this list and exploring the drivers of out or underperformance may yield insights.

When a manager has concentrated exposure to a particular event or company, they may end up on a list of top performers or underperformers in the Event-Driven strategy. Exploring the drivers of their outperformance or underperformance may yield insights into the effectiveness of their investment approach.

To explore our extensive Event-Driven list, with dynamic rankings, please see Link

Fixed Income

Similar to Equity Long/Short managers, Fixed Income managers are typically influenced by the underlying market conditions. However, for this list, the focus is on managers who are sensitive to a specific subsector of the fixed-income market, particularly those engaged in the lowest part of the capital structure.

To explore our extensive Fixed Income list, with dynamic rankings, please see Link

Risk Premia

Risk Premia managers are commonly implemented well-explored and researched systematic strategies. These may be viewed as a general proxy for Hedge Fund exposure. Performance of specific factors may reveal differences and similarities to your own portfolio. To explore our extensive Risk Premia list, with dynamic rankings, please see this Link

Crypto

As usual Crypto traders are the wildest bunch on the street. Returns tend to be double-digit (or even triple-digit for the best funds), simply due to the volatility of the asset class. To explore our extensive Crypto Strategy list, with dynamic rankings, please use this Link

Overall, our analysis provides a useful starting point for investors who are looking to compare and evaluate different investment strategies. However, it is important to keep in mind that no single metric or ranking can capture all of the nuances and complexities of the investment landscape, and investors should conduct their due diligence and consult with financial professionals before making any investment decisions.

Past performance is not indicative of future results.

There is a popular meme going around that shows an intoxicated Captain Haddock downing a stiff drink, complaining about having bad a rough week. Tintin smartly corrects him that it’s only Wednesday.

For Managed Futures managers, we can only imagine is how this week felt, especially so after having a rough day on Friday the 10th, when Silicon Valley Bank was halted. SVB was ultimately taken over by the FDIC over the prior weekend.

A lot of the goodwill that Trend Followers built throughout 2022 will likely have been undone. Janet Jackson’s song, “what have you done for me lately” sadly also applies to Trend Followers. No matter how strategic and long-term your client is.

The Bond trend was a nice case of how a trend follower strategy typically walks up the stairs and finally jumps out of the window as the trend change. Or as in this case, figuratively being defenestrated by the collective force of risk managers, traders, and asset allocators striving to reduce duration, credit mismatches, and losing trades in their books. A week where a triple witching coincided with a banking crisis.

While the end of the prior week was not stellar, this week represents a major turn of fortune for trend followers. The market changed from pricing in a FED that might eventually stop increasing policy rates, to pricing in a major banking crisis. The pricing is now offering substantial odds that the FED may actually decrease rates throughout 2023. An implicit macro view held by the average trend followers was the “inflation is transitory for longer” theme.

CTAs, as measured by the NilssonHedge Daily CTA index, lost 3.5% on Monday as bonds rallied. Tuesday offered a small relief and perhaps a good point to liquidate short-duration positions into weakness and the index recorded a gain of 0.9%.

Unfortunately for Trend Followers, the bond rally continued on Wednesday. At this point, a lot of CTAs had reduced fixed income positions by approximately half, in wake of the trend changes and increased volatility. Wednesday resulted in a loss of 1.8%.

Thursday offered a modest relief (+0.5%), but the appetite for government securities continued on Friday. This time, the loss was more normal with a loss of 80bps. This was a near-perfect combination of punches with the two first being the strongest. Here we note that our index is not a pure Trend Index, but also contains managers using other strategies.

Largely explaining the results for the week is the rally in the US 10y futures, which moved approximately 5 handles (from 110 to 115) from Friday the prior week to Friday this week.

What is pleasing to see is that the sensitivity that CTAs have to bond moves have been rapidly reduced (both position and risk-driven reductions), the moves were so significant that CTA suffered one of their absolutely worst daily losses (not the worst, but close), 2-day losses, etc. While CTAs did not trigger the bond rally, they and countless other entities added fuel to the fire as they needed to close out existing shorts.

Not only did the benchmark bonds increase significantly in price, but also the shorter duration instrument (Eurodollar and the SOFR futures) had extraordinarily steep price changes. This also contributed significantly to the negative week.

On the back of this, at least one Global Macro with significant pedigree has closed. Graticule, a Singapore-based fund, closed shop after having taken wrong-way bets in short rates. Given how markets have been trading there may be more fund closures.

As the SVB and FRB (First Republic Bank) crisis morphed into the international area and threatened banks with larger balance sheets (CS…) the quickly evolving banking crisis is still ongoing. Despite various interventions over the last week regulators have yet to install the necessary confidence into markets.

Our Daily CTA Index is now close to the maximum drawdown. The speed of the move is similar to the COVID-related March 2020 drawdown that we saw. You will see a similar picture for other daily CTA indices.

A number of lessons will probably be learned from this. Here are a few discussion points that may or may not be trivial:

• Market diversification matters: We have seen the largest losses suffered by managers with concentrated positions in Short Rates.
• Risk Management – volatility-driven position reductions when market volatility increases is a risk management component occasionally frowned upon by some managers.
• Rebalancing frequency: some CTAs rebalance continuously, while other rejig their portfolios weekly or even monthly. The unusual rapid market moves will refocus attention on this.
• Long-Term Trend Following as a crisis alpha – perception matters and most investors that have been sold managed futures as crisis protection will be dissatisfied. CTAs came into this crisis short bonds (and long equity) and failed to provide protection against the start of the Banking Crisis 2.0. Equities held up fairly well during the week but sold off in the prior weeks.
• Short-term strategies may naively offer better crisis alpha during rapid changes. If the crisis continues, long-term trend followers will eventually adjust their position. If the crisis is magically resolved over the next few weeks and we go back to business as usual, trend managers may be in for another whipsaw.
• Short Duration and Trend Following – 2022 was one of the few years when short-duration bets paid off for trend followers. An interesting question is how much of that profits were given back in the recent rally and how your systems should be constructed to capture trends/outliers while not being subject to large givebacks when trading against the wind (carry). And how it’s compatible with providing equity market stress protection. While equity stress protection is not a stated goal for many managers, it is often the precise reason why long-term trend followers have a substantial allocation from institutional investors.

As usual, these market moves as this will probably not repeat in the future but will result in a number of manager reviews, and potential reassessment of the strategy, followed by flows in and out of managers as the dust settles. Buckle up and put on your best suit for the upcoming reviews

If there is any silver lining to this debacle, it is that since 2019, Managed Futures is still (barely) outperforming other liquid alternative strategies. The setback is painful and Trend Following has again shown that it is a pain arbitrage. It is a difficult partner, sometimes loving and caring, but occasionally also violently abusive.

If you have come this far, you can explore our index data for further insights:

Index Data

As we are about to publish we learn that UBS has acquired CS. The terms of the deal are beyond our comprehension to fully analyze. But let’s hope that this is a light at the end of the rather short tunnel, and not another train (analog Bear Sterns followed by Lehman).

No Trend Following is not dead, but it is going to take some time to re-establish positions and recover the losses.

As per usual, our databases are updated and available to subscribers.

Over the weekend, the ultimate fate of SVB (Silicon Valley Bank) will be determined. The FDIC has taken control of the bank and is working through the liquidation process to preserve as much capital as possible. A number of (former) Libertarians and free-market Hedge Fund managers have asked for a Government bailout of SVB.

Friday was a bad day for most Hedge Fund strategies. CTAs suffered as Bond Futures rallied sharply. Prior to Friday, CTAs were generally short duration and the rally caused large losses. What looked like a good start to the year, is now back to a more mundane year for most managers. However, the angst and market action were centered around the de-pegging of the USDC.

In this short update, mostly to sort through our own thoughts, we present the share price of SVB, and the impact on the US Dollar Coin (“USDC”), a common stablecoin. And finally, we estimate the impact on “Hodlers” as some of the strategies that we track had substantial exposure to the USDC.

SVB (was) is a large bank and regulators are currently working through the situation. The exact financial impact is still unsure. The expectations for widespread contagion are somewhat limited. There may be a permanent impact on “regional US” banks as they may face higher regulatory pressure in the future.

In the end, as many pundits have pointed out, the implosion of SVB stems from a mismanaged duration and interest rate risk. SVB was likely almost unhedged with regard to interest rates.

The largest impact is likely on a number of startups and Venture Capitals. SVB had a large share of smaller emerging ventures as clients. The recent repricing of the tech/startup sector had a negative impact on SVB’s balance sheet. Together with a fall in bond prices and “hold-to-maturity” accounting this caused stress on the balance sheet of SVB. Ultimately leading to the demise of the bank.

In the Crypto space, there is a potential for collateral damage as the USDC that had exposure to SVB of $3.3bn or approximately 8%. The Coin broke the Peg on Friday and has been trading in a volatile manner. As the value of the SVB deposits is not likely zero, but rather valued slightly above 50 cents or more on the dollar the impact will be less.

USDC could be a potential way of trading any claims on SVB deposits. Cash timing is somewhat uncertain here though. There was an argument that USDC could result in a bank run as there was an understanding that any USDC would be convertible at par to regular USD.

Circle has promised to resume normal conversion on Monday but presumably, that requires a resolution of any advanced dividends from the deposits that they had. USDC offered relatively high transparency and was quick to disclose its exposure. It is unclear if USDC will offer conversion at par.

During Friday, the USDC traded at highly distressed levels, but the coins recovered considerably as the initial panic subsided. What is nice about Crypto Markets is that they are open 24/7 offering a real-time assessment of risk aversion.

One of our proprietary data sets has access to Crypto Positions for a large share of the managers that we track. We noted a substantial reduction in the number of USDC held (that was the most popular stablecoin), in favor of Tether (USDT). We note that USDT offers less transparency than USDC but the platform where we source our data only offers a few stablecoins.

The move out of USDC to Tether likely caused a permanent loss for many strategies. In 2022, the concept of impermanent loss was widely adopted across the DeFi crowd. In the wake of Luna, we now see somewhat better risk behavior, but the selling pressure presumably contributed to the de-pegging of the USDC.

In the end, Crypto Strategies, while having ~20% exposure to USDC suffered a minor impact. We estimate that this was less than 1% on Friday/Saturday as most other Coins kept up well.

In the end, we do not expect this to be an event similar to the LUNA coin. Depending on regulatory action, the markets may return to more stability on Monday. Ironically, CTAs seems to have been the main victim.

As per usual, our databases are updated and available to subscribers.

As we only have two trading days left in February, we thought providing our readers with a performance preview of the expected results would be helpful. Much can obviously change in the final 48 hours so any observation here is preliminary. Using our daily indices, we comment on the expected February hedge fund results.

In a month where the equity market lost traction, CTA shows its diversification worth by providing modest portfolio protection and positive returns.

Our latest estimate is that a diversified portfolio of Managed Futures managers is up around 1.5%. L/S equity gave up returns in line with equity markets. Event Driven and Market Neutral strategies seem to have fared better and will probably have positive returns for February 23.

Directional Crypto Managers had a strong revival in January, but the result is likely to be more modest this month. With two days to go, Crypto Strategies are positive. The result is only +2% which is not even a significant move for directional Crypto positions.

Trend Followers have likely kept on reducing positions in Equities and Bonds (but likely still short or neutral in these market sectors), and partly establishing new short USD positions. This seems to have worked throughout February and CTAs are likely to have recovered the initial January drawdown. To get a glimpse of estimates of market sensitivities we have developed a page that is showing short-term correlation and beta estimates.

Since the inception of our Daily Indices, which has indeed been a very special period in Global Markets. CTA has better than other strategies. Equity L/S has lagged in equity markets but preserved capital as of late. Even Driven suffered from a lack of deal flows in 2022 (but also a lack of equity risk premia). As the Risk-Free rate increased the premiums available in the market have gotten larger. Market Neutral / Quant Equity is continuing to claw back the Value related drawdown that almost took out the strategy up until early 2021.

In Crypto Markets, the demise of FTX seems to have reduced volatility substantially. In itself an interesting observation. At this stage, we are not sure how to interpret it.

Our daily indices are freely available for download and the intereted analyst can dig into them.

Using our extensive database, we have ranked close to 2,000 reporting hedge funds. From the best to the worst result in January. As noted by other market commentators, January was difficult for Trend Followers but was generally suitable for most other strategies, including the non-Trend CTAs. Most Hedge Fund strategies delivered positive performance.

Asset Allocation/Risk Parity did the best as long-only assets performed strongly. This also helped Equity L/S and Fixed Income strategies that have a persistent beta. On the flip side, we saw flat performance for Market Neutral and a small, unnoteworthy, gain for CTAs. Cryptos did really well as Technology assets rallied strongly.

CTA

A large share of the worst managers, on a performance basis, for January 2023 are the managers that did really well in 2022. Gravity is a mighty foe and the trend is your friend until it bends. Natural Gas traders continued to be fueled by rapid weather changes, and short volatility strategies continued to recover. To see the full CTA list, with dynamic rankings, please see Link

Market Neutral

Market Neutral is one of the least volatile strategies, where returns tend to accumulate over time, rather than printing lumpy returns on the upside or downside. Factor performance tends to dominate the average performance, but specific funds can be exposed to particular strategies that are not captured by academic factors. To explore our Market Neutral database, with dynamic rankings, please see Link

Equity Long/Short

Long/Short Equity strategies had a good start to the year. In particular technology-focused managers with a beta tilt did really well. This is a strategy that is highly expected to do well when the equity beta is positive. To explore our extensive Equity Long/Short list, with dynamic rankings, please see Link

Event Driven

As one of the strategies is dependent on equity risk premia but has a low beta to equity markets Event Driven has struggled in the last few years. Several aggressive, highly volatile managers did well, partly based on long positions in selected securities. To explore our Event-Driven list, with dynamic rankings, please see Link

Fixed Income

Like Equity Long/Short managers, Fixed Income managers are usually driven by the underlying market conditions. For this list, we typically find managers that are sensitive to a specific subsector, and especially managers that are engaged in the lowest part of the capital structure. To explore Fixed Income managers, with dynamic rankings, please see Link

Risk Premia

In a strong month for Equity markets, we noted strong results from managers that load on ERP (Equity Risk Premia) or VRP (Volatility Risk Premia). Several of the strongest result for Risk Premia managers related to those strategies. To explore the Risk Premia managers in the database, with dynamic rankings, please see Link.

Crypto

Patience paid off for a large set of Crypto Managers and HODLers was rewarded with outsized returns. To explore our extensive Crypto Strategy list, with dynamic rankings, please see Link.

Past performance is not indicative of future results. This email is intended for sophisticated investors.

NilssonHedge asked OpenAI to write a short success story for one of our many users. It turned out to be pretty ok. We do apologize in advance for the somewhat chatty nature of this post.

The databases are updated and available for download.

Once upon a time, in a city of finance and business, there was a young man named Jack who was trying to make it big in the world of investing. He had a natural talent for numbers and was always looking for new ways to maximize his returns.

One day, while searching for information on the latest hedge fund trends, Jack stumbled upon NilssonHedge, a database that collected returns and other important information on various hedge funds. He was fascinated by the wealth of available information and quickly became a frequent visitor to the site.

As he delved deeper into the data, Jack realized that there were patterns and trends emerging. He could identify which hedge funds were performing the best and which were struggling. He also discovered that the funds with the highest returns often had certain characteristics in common, such as a focus on trend strategies.

Excited by this new knowledge, Jack decided to start his own fund of hedge funds, and he used NilssonHedge as a valuable resource in building and managing his portfolio. He was able to make informed decisions based on the information he had access to and his fund quickly became one of the top performers in the market.

Word of Jack’s success spread quickly, and soon, other investors and fund managers were seeking out NilssonHedge to help guide their investment decisions. The database became the go-to resource for anyone looking to stay ahead of the curve in the hedge fund industry.

And so, NilssonHedge went from being a small and relatively unknown database to one of the most trusted and respected sources of information in the world of finance. Jack’s success was a testament to the power of data and the impact that NilssonHedge had on the industry.

From that day forward, NilssonHedge remained the standard by which all other hedge fund databases were judged, and its influence continued to grow and shape the world of finance for years to come.

We have been working behind the scenes the last few weeks and have created additional refinements when it comes to diving deeper into benchmarking exercises. We have created the following indices:

• Momentum/Trend index,
• Short-Term Trader Composite,
• Quant Index (which here is defined as non-trend),
• a Systematic and Discretionary sub-index subsetting our popular Commodity Index
• a Global Macro Index focused on discretionary “go-anywhere” traders.

While a lot of the indices are correlated (e.g. CTA Momentum and the Systematic CTA index), the drifts will be slightly different and may be useful for benchmarking style pure managers or understanding specific parts of the market structure.

We are touching up the final classification of the underlying managers and may revise the constituents list in the next few days.

We are also working on adding a “Volatility Arbitrage” index which should be ready in a few weeks.

The Quant Index has been defined as managers that are engaged in primarily non-trend strategies (AI, Fundamental, Short Term, etc.) and has generally delivered an interesting risk profile. The Discretionary Commodity index is the least correlated to the broader CTA Indices with a correlation of 0.2.

In particular, for investors looking for diversification, the CTA Quant Index has a relatively low correlation to the general CTA index of 0.67. Momentum on the other hand is 0.95 correlated to our broader CTA index.

In other news, we have distributed the first 2023 version of the NilssonHedge database and given the risk-on nature of the month, traditional alternative strategies did really well. Crypto Managers generated a whopping 32% highlighting their Cathie Wood / ARK correlation.

• We start the year with some 1,267 strategies with data, representing 67% of the strategies in the database.
• On the CTA side, consisting of a large share of private vehicles 222 managers have reported numbers as of “pixel-time”.

If you are interested to explore the structure of our new indices, please head over to our shop and subscribe to the free index data.

Index Data

During the last few weeks, we have been engaged in a number of housekeeping issues. One of them is our index reconstitution. We will be launching several new CTA indices that give additional details for specific sectors.

Every year we reconstitute our indices, a largely automated process, but which involves a fair amount of discretionary oversight to ensure that our indices are representative and relevant. This year, we have some 2900 different strategies in our various composites. Not all managers fit nicely into one composite.

The indices are disseminated through our database, website, partners, and the analytical software packages that NilssonHedge has partnered up with. These indices are generally not proper benchmarks from a regulatory perspective but rather performance indicators.

As a small notice, these indices are not designed to be investable and represent the average return from managers which requires continuous rebalancing. Index figures are updated continuously throughout the month and reflect the current state of the database.

Except for carveouts, there will be no backtracking of the indices. In cases when a new index is launched, it will be based on the historical, actual state of the database as of the launch date. Carveouts (i.e. a separate benchmark based on an existing index; CTA Systematic or CTA Discretionary managers are two examples).

Return data will be continuously updated and will incorporate lagging managers who for various reasons have decided to restart reporting. This may introduce variability in the historical rate of returns.

Remember that NilssonHedge calculates strategy composites based on available data and our individual return stream may not perfectly match the managers’ official track records. We seek to give researchers and allocators a better view of the average investor experience, rather than the asset-weighted investor experience that would be the typical outcome from traditional track records. This may cause minor deviations for particular managers.

Constituents

Every index starts with the index members. Members are selected based on the semi-systematic framework, based on the NilssonHedge classification framework. Below we describe the algorithm for selecting strategies that will form part of an index.

Our methodology for selecting constituents is straightforward and based on the following rules:

• At the end of January, each year, NilssonHedge isolates the managers and strategies that have reported returns for December, in the prior year. In this case, we need data for December 2022 at the end of this month (January 2023). We put emphasis on timely reporting and disclosure of results.
• This list remains fixed throughout the year, regardless of the number of new managers in the database. As such, expect the number of managers to gradually decline throughout the year.
  • Given the indices are calculated based on the average, the index is rebalancing toward reporting managers on a monthly basis.
• There are currently no requirements on assets under management, length of track record, or other qualitative aspects of the underlying firms.
• The monthly indices are generally not backfilled and represent the out-of-sample results. The exception is if we create a carveout of a particular subindex.
  • For instance, our Discretionary CTA index was launched in 2020, but historical returns were based on the structure and manager classification of the database as of December 2018.
  • In such cases, the indices will include managers that have stopped reporting to avoid survivorship biases.
• The daily indices have been partially backfilled based on the status of the database. We disclose the “go-live” date for affected indices.

NilssonHedge is discretionarily classifying strategies based on a semi-automated assessment of strategies, based on among other things keywords and potentially additional touch points with added managers. Our keyword search algorithm is similar to the one described in “Man vs. Machine: Comparing Discretionary and Systematic Hedge Fund Performance”.

Classification Framework

Some managers are easy to classify, and some other managers are not easy to classify due to their hybrid investment strategy. The classification always involves a certain amount of discretionary judgment.

We classify managers into four different categories:

• Type: The headline strategy, to name a few: CTA, Crypto, Market Neutral. We may not follow the managers’ self-classification of their own strategy but try to classify them based on our perception of the strategy and how the return stream behaves in terms of volatility, correlation, and betas to markets.
  • As an example, is that our CTA encompasses classical Managed Futures managers, Global Macro managers, and asset managers that may not have registered with the NFA and may thus not formally hold themselves out to be a “CTA”.
  • Likewise, we do not have a pure classification for Macro Managers, that may engage in trading of cash securities, swaps, and other instruments that are not typically part of the classical toolbox for a CTA.
• Style: Here we typically classify a manager depending on their investment framework. The main division is if the manager is systematic or discretionary.
  • As practitioners may have observed even strictly systematic managers have a large degree of discretionary elements, and discretionary traders may use systematic elements or models.
• Strategy: Based on the specific investment strategy implemented we further classify the return stream into a number of sub-strategies.
  • Trend Following, Fundamental, and AI are sample strategies. The Strategy category is more fluent.
  • Super strategies exist:
    • Quant, a new index, which consists of AI, Behavioral, Contrarian, Fundamental, Market Neutral, Short Term subject to a systematic implementation.
• Sector: The final classification is based on the sectors a program has exposure to.
  • Super Sector:
    • Commodities consist of all commodity sectors’ specific managers (Energy, Metal, and Agricultural) and managers that may have exposure to all commodity markets without a disclosed focus.

Transparency

Each week, we update the performance of our indices and present them in the below format via the NilssonHedge webpage. Moreover, we disclose the index members, per year. This can be found in a tabular form at the bottom for each Nilsson Hedge index.