After a euphoric start for the world’s stock markets, January ends with a correction that we consider healthy in view of the extreme overbought¬†conditions.
The market continues to look to the second half of the year, where a strong rebound in activity is expected once a large part of the¬†population has been vaccinated. The market is discounting that everything is going to be fine, but there are quite a few uncertainties that could bring¬†the party to a halt. These include slow rates of vaccination in many countries, a trend towards greater savings by households and, of course, the¬†emergence of new strains of the virus that may force new restrictions on mobility. What worries us most is that almost no one disagrees about the¬†scenario despite the uncertainties. Although it is possible that the party will continue, we think that the greatest risk is in the most crowded trades.¬†¬†
January ends with an episode of upside volatility that led to risk reductions. As CB¬īs playbook is about addressing downside volatility, we wonder¬†how they will address it if these episodes repeat in the future.¬†
A positive month for the strategy even as our main positions did not perform. We have seen a rangebound market in most of our pairs, with certain¬†volatility, which was well exploited by our model.
Rotation has remained high and closed trades contributed 1,2% during the month. This has¬†contributed to a reduction in risk. Current portfolio has a very good level of protection while information ratios remain high.
During the month 23¬†out of the 28 pairs within our universe contributed positively to performance. The portfolio kept showing certain negative correlation to risk assets.¬†We kept our long USD position, against the consensus, though it was gradually reduced during the month.
Risk reduction is generally leading to bid¬†the USD as the short positioning is extreme.‚Äč
Below we show you the October cards of all our funds.
As always we remind you that we are at your disposal for anything you may need.
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