October was a tough month for trend following investors. The CTA funds underperformed in October as a result of their long duration stance in fixed income and short energy in commodities, positions that they liquidated aggressively over the course of October. At present, their neutral position on bond duration may allow them to better navigate in a possible new rising yield environment.
We were glad we diversified the portfolio last month into the right direction. We reduced our CTA positions in favour of Long / Short Equity and Currency Trading and Multi Strategy. All new strategies did well during October. Due to this diversification the portfolio faced a limited loss.
In the next months we are looking to increase the weight of Long / Short Equity investments by adding one new fund. We believe CTA’s will face tough market environments in the aftermath of the election of Mr Trump as the President of the United States. His intended policies will likely change the interest rates world wide. It looks like we face the end of the era of steadily erosion of interest rates.
For the CTA’s a challenge to turn the positions from long positions into short positions. The bond positions are in general almost the largest positions they have. Next to the turmoil in the bond markets there was also volatility in the currency markets. We expect more volatility in the currency markets going forward.