{"id":54351,"date":"2016-07-19T03:13:00","date_gmt":"2016-07-19T01:13:00","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/brexit-illustrates-the-diversification-benefits-of-trend-following-strategies\/"},"modified":"2019-12-31T00:57:55","modified_gmt":"2019-12-30T23:57:55","slug":"brexit-illustrates-the-diversification-benefits-of-trend-following-strategies","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/brexit-illustrates-the-diversification-benefits-of-trend-following-strategies\/","title":{"rendered":"Brexit illustrates the diversification benefits of trend-following strategies"},"content":{"rendered":"<p>Guillaume Jamet, principal portfolio manager of the Lyxor<br \/>\nEpsilon programme, comments: <em>\u201cThis performance<br \/>\nillustrates the de-correlating property of trend-following<br \/>\nstrategies\u201d<\/em>. <\/p>\n<p>The market environment has been mixed for trendfollowing<br \/>\nstrategies over the last quarter, as illustrated by<br \/>\nthe SG Trend Index which returned -1.2% in Q2. Trendfollowing<br \/>\nstrategies thrive in environments in which <\/p>\n<ul>\n<li> Markets show clear trends, and<\/li>\n<\/ul>\n<ul>\n<li> Returns between asset classes are weakly correlated,<br \/>\nallowing volatility to be reduced by diversifying across<br \/>\nmultiple asset classes<\/li>\n<\/ul>\n<p>The first condition has not been met: market trendiness remains low, as indicated by the Lyxor Epsilon Trend Index, which<br \/>\nreached -4% at the end of June, well below the historical average of 4% \u2013 see figure 1. The second condition has been<br \/>\npartially met: market correlations remained low. As indicated in figure 2, the Lyxor Epsilon Correlation Index remained below<br \/>\nits historical average of 26%, except the week following the Brexit, when it jumped to 4% above it. <em>\u201cClearly, the Brexit<br \/>\nimpacted correlation statistics,\u201d<\/em> says Jamet. <em>\u201cHowever, there is as yet no indication that we are entering a systematic high<br \/>\ncorrelation regime like the one from 2008 to 2012\u201d<\/em>.<\/p>\n<p><a href=\"http:\/\/www.next-finance.net\/http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index2.jpg\"><img loading=\"lazy\" class=\" aligncenter size-full wp-image-54347\" src=\"IMG\/jpg\/lyxor_epsilon_trend_index2.jpg\" alt=\"lyxor_epsilon_trend_index2.jpg\" align=\"center\" width=\"1021\" height=\"1068\" \/><\/a><\/p>\n<p><em>\u201cIn the current environment risk management is key\u201d says Jamet. \u201cFour years ago we did a major review of the<br \/>\nunderlying model of the Epsilon programme. We introduced diversification over implicit risk factors, rather than over<br \/>\nasset classes. We now see that this innovation has paid off. Our 3-year annual performance is 12.6% as at the end of<br \/>\nJune, while keeping to our target volatility of 10%. This places us in the top quartile of our peer group.\u201d<\/em><\/p>\n<p>The last few months featured several clear market trends, which all seemed to anticipate a Brexit, including:<\/p>\n<ul>\n<li> Depreciation of the British pound<\/li>\n<li> Appreciation of the Japanese yen, which typically serves as a safe haven for Asian investors<\/li>\n<li> Rally in both Gilts and Bunds, as a result of flight to quality and in anticipation of even more accommodative<br \/>\nmonetary policies.<\/li>\n<\/ul>\n<p><img loading=\"lazy\" class=\" aligncenter size-full wp-image-54349\" src=\"http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3.jpg\" alt=\"lyxor_epsilon_trend_index3.jpg\" align=\"center\" width=\"1008\" height=\"474\" srcset=\"http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3.jpg 1008w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3-300x141.jpg 300w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3-768x361.jpg 768w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3-990x466.jpg 990w\" sizes=\"(max-width: 1008px) 100vw, 1008px\" \/><\/p>\n<p>Jamet elaborates: <em>\u201cEpsilon was able to benefit from all these trends. In the months before the referendum, markets<br \/>\nwere pricing in a Brexit. In contrast with many discretionary managers, CTAs did not overreact to the reversal in market<br \/>\nsentiment which occurred the week before the actual vote, and held on to their long Brexit positions. This illustrates the<br \/>\nadvantage of a strategy which analyses markets differently.\u201d<\/em><br \/>\n<div id='gallery-1' class='gallery galleryid-54351 gallery-columns-3 gallery-size-herald-lay-c1'><figure class='gallery-item'>\n\t\t\t<div class='gallery-icon portrait'>\n\t\t\t\t<a class=\"herald-popup\" href='http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index2.jpg'><img width=\"470\" height=\"313\" src=\"http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index2-470x313.jpg\" class=\"attachment-herald-lay-c1 size-herald-lay-c1\" alt=\"\" loading=\"lazy\" srcset=\"http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index2-470x313.jpg 470w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index2-300x200.jpg 300w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index2-414x276.jpg 414w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index2-640x426.jpg 640w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index2-130x86.jpg 130w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index2-187x124.jpg 187w\" sizes=\"(max-width: 470px) 100vw, 470px\" \/><\/a>\n\t\t\t<\/div><\/figure><figure class='gallery-item'>\n\t\t\t<div class='gallery-icon landscape'>\n\t\t\t\t<a class=\"herald-popup\" href='http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3.jpg'><img width=\"470\" height=\"313\" src=\"http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3-470x313.jpg\" class=\"attachment-herald-lay-c1 size-herald-lay-c1\" alt=\"\" loading=\"lazy\" srcset=\"http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3-470x313.jpg 470w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3-300x200.jpg 300w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3-414x276.jpg 414w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3-640x426.jpg 640w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3-130x86.jpg 130w, http:\/\/beta.next-finance.net\/wp-content\/uploads\/2016\/07\/lyxor_epsilon_trend_index3-187x124.jpg 187w\" sizes=\"(max-width: 470px) 100vw, 470px\" \/><\/a>\n\t\t\t<\/div><\/figure>\n\t\t<\/div>\n\n","protected":false},"excerpt":{"rendered":"<p>During the Brexit, the average CTA did very well: the SG Trend Index, a<br \/>\nperformance indicator for trend-following strategies, jumped 2.9% on 24 June. Trend-following strategies outperformed both equities, with the MSCI World Index dropping 4.9%, and hedge funds in general, with the HFRX Global Hedge Fund Index shedding 1.1%. <\/p>\n","protected":false},"author":1,"featured_media":54347,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1655,1658,1659,1690,1651,1437,2087,1814,2068,1672],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/54351"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=54351"}],"version-history":[{"count":1,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/54351\/revisions"}],"predecessor-version":[{"id":54352,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/54351\/revisions\/54352"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/54347"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=54351"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=54351"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=54351"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}