RGNCM Monthly Reporting Package: LoCorr

RGNCM Monthly Reporting Package: LoCorr

May 8, 2023

February 2023

February’s surprisingly persistent and higher than expected inflation readings poured cold water on a strong start for stocks and bonds in January. For the month, stocks declined 2.5%, ten-year notes declined 2.9% and the dollar index rose 2.7%. The declines in stocks and bonds were relatively orderly and smooth. Their respective implied option volatility indices, after dropping in January, rose back up to December levels. Our models performed well in fixed income and rebounded strongly from January’s difficulties for a positive February.

US fixed income led the way with a steady stream of short positions throughout the month. Machine learning, momentum and long-term styles contributed to the gains. It was a similar story in European fixed income, except our models went long early in the month in anticipation of a continuation to the upside of the January rally. This position was quickly closed out and the models were able to trade from the short side for the remainder of the month. Machine learning, long-term and contrarian families profited from the price action.

 

FX performance was mixed, with Yen and Pound profitable and Euro and Swiss negative. Our models were positioned long early Euro and Swiss early in the month seeking a continuation of the January rally. The quick reversal caught the models offsides. Yen and Pound were traded mostly from the short side on machine learning, breakout and momentum signals, and we profited on the dollar rally in February.

It was a challenging month in equities and commodities for our models. The tight, range bound trading in energies and European stocks were difficult for machine learning, breakout and momentum styles.

You can see how European stocks have been locked around the 4250 level, making it difficult to find opportunities for both short-term momentum and mean reversion styles.

Looking ahead, the fixed income market seems to be repricing the Fed terminal rate and chances of a pivot this year while at the same time, subprime loan delinquencies are rising rapidly. This delicate balance of bringing inflation down with a soft landing is fraught with peril and we continue to see good volatility and trading opportunities in the near future.

 

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CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Presentation – EOM November 2022 distribution

R.G. Niederhoffer Capital Management — EOM November 2022 Performance Estimates

RGN Smart Alpha TearSheet – EOM November 2022

RGN Smart Alpha Program-DDQ EOM November 2022

RGN Smart Alpha PnL by Sector and Strategy – EOM November 2022

RGN-Smart-Alpha-Program – Net Monthly Returns as of 30 Nov 2022

RGN Smart Alpha Program – Net Daily Returns 30 Nov 2022

 

September 2022

August 2022

August was an outstanding month, as volatility and a renewed bearish sentiment in fixed income and equities drove all our quantitative, short-term, non-trend-following investment programs to strong gains. Our flagship, the Diversified Program, gained 10.8%, the Smart Alpha Fund gained 4.4%, and the lower volatility Smart Alpha UCITS fund rose 1.8%. The 5-10 day duration Emerald program rose 12.1%. Total firm assets are $1.04 billion as of 31-August. 

The highly anticipated late August Jackson Hole speech by Fed Chairman Powell did not disappoint in the surprise category.  He said, “While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.” 

It was interesting to see a Federal Reserve Chair, who arguably since Chairman Greenspan has made pain avoidance an integral part of their strategy, shift to pain management and expectation.  It highlights the difficult predicament all central banks have put themselves into.  The bond and equity markets sold off precipitously into the end of the month with both closing at or near the lows of August.

The post Jackson Hole increase in volatility and the resumption of the down trend worked out well for our models and we ended August posting solid gains.

In fixed income, the signals generated ended up having a short bias for most of the month and the models were accurate in both US and Europe.  For US fixed income, contrarian, machine learning and long-term families contributed to gains.  In European fixed income, machine learning, breakout, momentum and long-term families were profitable. 

In FX, Yen, Canada and Aussie were up but Euro was down more and ended the month slightly down.  In Euro, the models had small short positions early in August looking for another leg down, but the Euro broke out to the upside to shift our models long.  The subsequent false breakout and resumption of the down move caught our models leaning the wrong way.  Breakout, contrarian and momentum families had difficulties in the Euro for August. 

Uncertainty and volatility remain elevated as we enter fall.  We don’t know how much pain the Fed is warning us to expect and at what point they’ll be pressured to act.  Either way, we are optimistic of the trading opportunities the volatile markets will provide for the rest of the year.

Keep an eye out for our monthly letter coming to your inboxes tomorrow. Roy Niederhoffer will offer his outlook on near-term and longer-term markets and go further into how RGNCM has been turning volatility into opportunity for its investors.

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July 2022

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Program Presentation – EOM July 2022 Distribution

R.G. Niederhoffer Capital Management — EOM July 2022 Performance Estimates

RGN Smart Alpha TearSheet – EOM Jul 2022

RGN-Smart-Alpha-Program-DDQ – EOM July 2022

RGN Smart Alpha PnL by Sector and Strategy – EOM July 2022 (estimated)

RGN Smart Alpha Program – Net Daily Returns

 

A spectacular stock and bond rally in July ended with a euphoric burst in the last few days of the month, capping one of the best six-week periods ever for stock/bond portfolios. As the Federal Reserve tightens into a rapidly slowing economy, market participants are rapidly shifting to a more bearish economic outlook and a dramatic reversal of Fed policy by 2023. Unfortunately, after some very strong performance in the first half, we began the second half of ’22 with a loss.

While the US 10Y Note and German Bund are now trading at levels last seen in March and April, we gave back just a fraction of the profits we captured in the fixed income sector from March through June. Nevertheless, our models did struggle a bit in European fixed income, where the reversal was sharper and unrelenting. Machine learning, momentum and contrarian families incurred losses, while our breakout style gained. US fixed income was close to unchanged, with machine learning and momentum on the downside and contrarian family in the plus column.

FX trading also generated a small loss, with gains in Yen, and small losses or flat results in other currencies. The Yen continued its weakening trend against the dollar until mid-July, when it suddenly rallied from 139 to nearly 130, finally settling near 133. Gains in Yen trading came from the machine learning family. The Australian dollar tripped up the breakout and momentum families with its reversal off the lows. We are encouraged by this burst of volatility in $/Yen, and look forward to more interesting movements in the FX sector, which has either flat-lined or moved unidirectionally for the last year or so.

At this point, markets have repriced inflation and economic expectations. The coming weeks and months will see whether July’s reversal is sustainable. An incorrect assessment on the stubbornness of the current inflationary forces could bring volatility back with a swift move back down to the lows. A stagflationary status quo could keep markets in a volatile range for the rest of the year. And a continuing slowdown could, ironically, bring stocks and bonds back to new highs quickly.

Fortunately, we need only predict a few days in advance – we see excellent opportunities ahead, and look forward to continuing to provide strong, diversifying returns to our clients the for the rest of 2022 and beyond.

Overall, firm assets stand at about $1 billion, and we were pleased to have our flagship fund, the Diversified Program, rank #6 of all major hedge funds year to date with a +45% return through 30 June 2022 on the HSBC Weekly Hedge Fund report of July 2022.

 

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RGN Smart Alpha Program Presentation – EOM June 2022

R.G. Niederhoffer Capital Management — EOM June 2022 Performance Estimates

RGN Smart Alpha TearSheet – EOM Jun 2022

RGN-Smart-Alpha-Program-DDQ – EOM June 2022

RGN Smart Alpha PnL by Sector and Strategy – EOM June 2022 (estimated)

RGN Smart Alpha Program – Net Daily Returns

 

With the year halfway complete, Equity, Fixed Income and Cryptocurrency markets have had an unusually difficult year. With the Federal Reserve and other Central Banks unable to rescue markets with their usual waves of liquidity, traditional 60/40 diversified portfolios have been challenged as never before. The Smart Alpha Program is designed to diversify portfolios during difficult periods like this, and we are pleased to have continued our successful 2022 in June.

While the overall trend has been down in stocks and bonds, and up in volatility, June did represent a bit of a relaxation of the primary downtrend in stocks and bonds, and presented its own challenges to many diversifying strategies as stocks and bonds finally caught a bid in the second half of the month. The month began with the CPI inflation gauge coming in higher than expected. A flurry of selling hit the markets, and stocks and bonds made new yearly lows. But in the second half of the month, a sizable countertrend short-covering rally brought a slightly less disastrous end the quarter for stocks and bonds.

 

Our models performed well in the initial decline, and were able to maintain almost all of their profits as stocks and bonds rallied back. Interestingly, during the second quarter our models had some of their best risk-adjusted return in our 30-year history, suggesting that current market conditions are ideal for our strategy.

The European Fixed Income sector — a relative underperformer most of the year — led the way in profits in June.  Our models were able to take advantage of the large decline early in the month, with machine learning, breakout and contrarian families profitable. The same groups of models also posted profits in US Fixed Income.

Currency trading was up overall for June, with profits in Yen and Euro.  Machine learning and breakout families were able to profit from the short side. We incurred some losses in, in British Pound, Swiss and Aussie Dollar, with machine learning and breakout strategies having some trouble in those FX pairs.

We expect elevated volatility in the second half, with mid-term elections, war in Ukraine, deleveraging across traditional finance as well as the crypto and Defi space, and Fed tightening into an already weak economy. Central Bankers find themselves in a harder and harder position, which increases the likelihood of policy errors.

In the absence of the Fed Put, we believe that the Smart Alpha Program is unusually well positioned to provide needed convexity and portfolio diversification.

 

 

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ARCHIVE

 

Markets in May took a decidedly different course from the strong trends that characterized March and April. Equities and fixed income recovered from the lows and June VIX futures declined from 31.2 to 26.5.

Our models encountered some headwinds from the reversals and/or lower volatility and gave back some of our strong profits of the previous months.

In fixed income markets, we were down for the month overall, with US fixed income up and European fixed income down.  The relatively tight consolidating action of European fixed income markets yielded losses in machine learning and momentum families.

The price action in US fixed income provided better opportunities throughout the month.   The first few days’ rapid decline allowed the models to profit from the short side.  The significant reversal (TY futures from 116 to 120 handle) for most of the rest of May was challenging initially as our models attempted to reverse that rally, but provided enough volatility for the models to profit a bit.  Combined with the early gains, the US fixed income ended positive overall as machine learning and contrarian families generated profits.

FX was also down for the month with profits in Euro & Pound and losses in Yen, Cad & Aussie.  In Euro and Pound, the models profited from short positions on the initial down leg and navigated well enough on the reversal to retain the profits.  Machine learning and contrarian families were profitable.

Yen was the most challenging currrency in May.  The models put on several short Yen positions looking for a resumption of the weak Yen but incurred losses as the Yen showed strength right up until the end of the month.  Machine learning, breakout, momentum and contrarian families all incurred losses.

Quantitative tightening has begun, oil is trading near the highs, Yen has resumed its weakness and bonds have tumbled to start June.  The challenges facing the central banks remain the same.  We believe the volatility landscape continues to be positive for the future.

 

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Program Presentation – EOM May 2022 Final

R.G. Niederhoffer Capital Management — EOM May 2022 Performance Estimates

RGN Smart Alpha TearSheet – EOM May 2022

RGN-Smart-Alpha-Program-DDQ – EOM May 2022

RGN Smart Alpha PnL by Sector and Strategy – EOM May 2022 (estimated)

RGN Smart Alpha Program – Net Daily Returns

 

Against the backdrop of rate hikes from the US Federal Reserve, April saw the US and European fixed income markets continue to tumble, the dollar rally and stocks decline precipitously.  In fact, the 2022 start is the worst in decades for both bonds and stocks.

Our models performed extremely well in this volatile environment and posted solid gains across all sectors and sub-sectors. The models were also extremely accurate, and ended with one of their best monthly sharp ratios. On a daily gross basis for the month, the Smart Alpha program and funds ran a Sharpe >=6. Coming on the heels of a very strong March, it suggests the current environment is absolutely outstanding for the fund. It’s also important to note that all positions we have taken during March and April are completely exited, in keeping with our 2-3 day average position duration.

In fixed income, with a bias to the short side, both US and Europe were profitable with machine learning, breakout, contrarian and momentum in the plus column. As the market bounced successively lower, we were able to sell rallies and profit strongly, particularly in the US.

Dollar strength was evident across the board in April, and our models were successful there as well. The big winner was the British Pound, a market that has bedeviled our models for some time. With a second consecutive strong month in FX, and volatility levels high, we expect continuing great opportunities here, as well, now that things are moving again. With so much divergence among the major economies, the volatility here is no surprise.

Looking ahead, tightrope-walking central bankers are facing decidedly worse conditions as the year unfolds.  Japan’s “weather” may be the worst of the bunch with BOJ facing inflation at home but unable or unwilling to budge on its yield curve control of 0.25% cap for JGBs.  The Yen has dramatically declined and this dilemma that BOJ, and to varying extents other Central Banks, face may only be the beginning of an unfolding crisis.

The incongruity of the Fed beginning a tightening cycle after a remarkable, negative GDP print is extreme. It’s never happened before, and clear predictions are dangerous to make. It may be that we are already in a recession (all it will take is one more negative quarter), before the Fed even begins to try to slow things down. And what then?

It is possible that the large trends are over, with economic weakness now the big surprise. We look forward to lots of volatility ahead but not necessarily with the obvious trend strength that has floated a lot of longer duration strategies. The surprises could be a weaker dollar and a strong fixed income sector, rather than a continuation of the strong trends the other way.

 

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Program Presentation – EOM April 2022

R.G. Niederhoffer Capital Management — EOM April 2022 Performance Estimates

RGN Smart Alpha TearSheet – EOM April 2022

RGN-Smart-Alpha-Program-DDQ – EOM April 2022

RGN Smart Alpha PnL by Sector and Strategy – EOM April 2022 (estimated)

RGN Smart Alpha Program – Net Daily Returns

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MARCH 2022

The 1^st quarter of 2022 was one for the record books. Rapidly rising inflation and war in Ukraine combined for some record setting out-of-database and multi-decade extreme moves:

For 1^st Quarter 2022*

• Global Bonds – worst drawdown ever
• US Bonds – 3rd worst Q1 since the Civil War
• US Yield Curve – greatest Q1 flattening ever
• Commodities – best start to a year ever
• Oil – best start to a year since 1999
• Regular Gasoline (at-the-pump) – fastest rise ever to record highs
• US Stocks – 3rd biggest short-squeeze rebound since Lehman after the worst start to a year for stocks since 2009 (2nd worst in over 30 years)

• Ruble – stronger against the dollar in March after ugly Jan/Feb

In early March, as the war entered its first week, the West turned to economic sanctions as punishment for Russia’s actions. Tensions mounted, oil surged, and the stock market headed back down towards the lows of the year.

The fixed income sector tried to mount a flight to quality rally, as it usually does in times of uncertainty and plunging equities, but under the backdrop of surging inflation the market couldn’t ignore the fundamentals and reversed to a sharp 8 point down leg in the ten-year futures.

Our models were profitable overall in fixed income with US up and Europe down. European fixed income underperformed early in the month being short during the flight to quality rally as our models got turned around to the long side by the much larger rally in Europe than in the US. Our models were able to profit on the short side more effectively in US fixed income and managed better throughout the month with machine learning, breakout and contrarian families performing well. Unfortunately, the small rally at the end of the month caught us with significant short positions, so we gave back a bit of profit right at the end of the month.

Although tensions have declined from the highs of March, we may only be in the opening moves of the geopolitical chess match. Uncertainties abound with inflation hurting billions worldwide, Russia using its leverage on European energy needs, and the ongoing hot war amidst uncertain peace talks to name a few. We look for volatility to remain elevated in Q2 and a good environment for our models.In currencies, the major breakout in USD/JPY as well as solid volatility in EUR and GBP provided fertile ground for our FX trading. After years of trading in a tight range of 115 to 100, USD/JPY broke out to the upside. Yen profits came from trading by machine learning, breakout and momentum families. EUR price action was choppier but contrarian, breakout and momentum families lead the way in trading performance and generated profits in EUR. The large intraday moves were helpful for our short term strategy despite the lack of a clear trend.

 

*source: Zerohedge 3/31/2022 Global Bonds Suffer Worst Drawdown Ever As Massive March 'Squeeze' Rescues Stocks From Rout

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CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Program Presentation – EOM March 2022

R.G. Niederhoffer Capital Management — EOM March 2022 Performance Estimates FINAL

RGN Smart Alpha TearSheet – EOM March 2022

RGN-Smart-Alpha-Program-DDQ – EOM March 2022

RGN Smart Alpha PnL by Sector and Strategy – EOM March 2022 (estimated)

RGN Smart Alpha Program – Net Daily Returns

 

February 2022

February began with more fixed income market weakness as persistent inflation concerns continued to place downward pressure on prices. The market’s focus, however, changed dramatically in late February when Russia invaded Ukraine. This dramatic turn of events jolted already nervous and volatile world markets to another level of uncertainty and volatility. It has set in motion geopolitical moves and counter moves of which we have yet to fully feel the intended and unintended consequences. Markets have responded with extraordinary volatility, though so far as of this writing most of it has been in the commodity and equity sectors rather than the fixed income and FX sides.

It’s interesting to compare the YTD percent changes through 4-March.

 

 

 

 

 

 

 

 

 

 

Fixed income trading started off well during February and by mid-month had a good lead for the month.  Gains were led by machine learning, breakout and momentum families. The post -invasion trading in fixed income was more challenging with some enormous intraday reversals and counter trend rallies. Despite losing some of the gains from the first half, we ended with significant gains in fixed income for February.

 

Currency trading in February was a different story and was challenging for our models throughout the month. It started with the false breakout in Euro at the end of January. The rally to begin February caught our models leaning short and incorrect. The post-invasion choppiness in Yen was another difficult trading environment.  Overall, machine learning and breakout underperformed the most in FX but our gains in fixed income kept the fund in positive territory for February.

 

As of this writing, news continues to come in and the situation changes by the hour.  With an eye on risk, we look forward to good trading opportunities in the coming months, and March is off to a good start.

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Program Presentation – EOM February 2022

R.G. Niederhoffer Capital Management — EOM February 2022 Performance Estimates

RGN Smart Alpha TearSheet – EOM February 2022

RGN-Smart-Alpha-Program-DDQ – EOM February 2022

RGN Smart Alpha PnL by Sector and Strategy – EOM February 2022 (estimated)

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CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Program Presentation – EOM November 2021

R.G. Niederhoffer Capital Management — EOM November 2021 Performance Estimates_Final

RGN Smart Alpha Program TearSheet – EOM November 2021

RGN-Smart-Alpha-Program-DDQ – EOM November 2021

RGN Smart Alpha Program PnL by Sector and Strategy – EOM November 2021 (estimated)

RGN Smart Alpha Program – Net Daily Returns

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CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Program Presentation – EOM October 2021

R.G. Niederhoffer Capital Management — EOM October 2021 Performance Estimates

RGN Smart Alpha Program TearSheet – EOM October 2021

RGN-Smart-Alpha-Program-DDQ – EOM October 2021

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