November 2021 comment

November had been a relatively steady month up to the point the Omicron variant curveball hit markets around the low liquidity Thanksgiving period. The event heightened uncertainty and the expectations of restrictions, consequently causing a widespread de-risking dynamic across the full spectrum of asset classes. There was no place to hide as even the Euro exhibited counter-intuitive strength, such that affected our EURGBP short that was eventually driven to a stop exit. In this environment, and given we had entered the month with an observable net short position, rates were the main drag on performance.

Our risk controls were triggered especially amongst our trend positions, with fourteen exits and ten new entries indicating a clear reshuffle in the segment. There were stops in rate shorts – Italy 10 year and 3 month sterling – and equity longs – Mexico, FTSE, Russell, Russia and Nifty. FX positions also pivoted towards more risk-off exposures, with shorts in AUDUSD, EURJPY and NZDUSD being added. In aggregate, we are still short developed market currencies and carry a small long of emerging market currencies versus the dollar, although the dollar bias has shifted from short to long.

Even after experiencing our sharpest drawdown this year, we are encouraged by our return to risk metrics that have remained within the 95th percentile amongst our international peers tracked by Bloomberg.