RGNCM Monthly Reporting Package: GS Americas

May 8, 2023

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

R. G. Niederhoffer Programs Presentation – EOM April 2023

R.G. Niederhoffer Capital Management — EOM April 2023 Performance Estimates – Final

RGN Smart Alpha TearSheet – EOM April 2023

RGN Smart Alpha Program-DDQ EOM April 2023

RGN Smart Alpha PnL by Sector and Strategy – EOM April 2023

RGN-Smart-Alpha-Program – Net Monthly Returns as of 28 Apr 2023

MANAGER COMMENTARY:

April 2023

MANAGER COMMENTARY

The markets mostly paused for a breather in April after the sudden and violent reversals of March. The S&P 500 had a minuscule 3.1% range for the whole month – absolutely tiny compared to the one-week 6.8% range during the second week of March. It was a similar story in fixed income.

Our models found the quiet, range-bound markets a little challenging. However, in keeping with our efforts over the last few years to identify less than ideal environments, our models correctly identified the lack of good trading opportunities. Portfolio bet size and risk taking were much smaller than normal. Reflecting this, our average daily standard deviation for April was about half of our usual target.

US Fixed income was marked by generally directionless trading in April. We took small, long and short positions for the first 2/3^rds of the month. Models leaned long towards the end of the month, but the sector turned back down to finish nearly unchanged. Losses occurred in machine learning and breakout styles. European fixed income trading was also muted and had small gains and losses across several markets.

Trading in the FX sector produced a small loss in April, with Yen trading profitable on the decline in Yen (dollar rally) in the last two days of the month. Machine learning and momentum strategies contributed to profits.

Euro and Australian dollar trading was quiet and range-bound with losses in Australian dollar early in the month from long positions, and losses in Euro later in the month from a short position. Both positions were seeking market continuations, and breakout and momentum styles incurred losses.

Equity trading also produced a small loss, with US equities profitable and Europe and Asia producing small losses. The late month decline and rally back in European stocks caught our models leaning the wrong way. US equities were more in keeping with our models’ predictions, and we captured some profits late in the month from contrarian and machine learning styles.

ISM manufacturing data came out May 1^st, and it is pointing to no growth and higher prices. The April pause should soon give way to a resumption of volatility as the world grapples with persistent inflation, bank failures and uncertain geopolitical climate.

March 2023

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R. G. Niederhoffer Programs Presentation – EOM March 2023

R.G. Niederhoffer Capital Management — EOM March 2023 Performance Estimates

RGN Smart Alpha TearSheet – EOM March 2023

RGN Smart Alpha Program-DDQ EOM March 2023

RGN Smart Alpha PnL by Sector and Strategy – EOM March 2023 (estimated)

RGN-Smart-Alpha-Program – Net Monthly Returns as of 31 Mar 2023

The March failure of regional banks set in motion a rapid and dramatic shift in expectations from the Federal Reserve this year. With this overnight change in outlook, the fixed income markets, particularly the short end, saw a fierce rally off multi-year lows, an extraordinary rise in volatility and an unprecedented change in market liquidity profile.

The two-year futures market’s depth of liquidity at each level went from 1000s up to less-than-100 up seemingly overnight. The chart below from GS shows the sudden change in the market liquidity structure in the two-year futures (cost of sweeping 5,000 lots).

* https://www.zerohedge.com/the-market-ear/sweep-it

Our generally short-term, long volatility portfolio was able to capture some of the initial rally in fixed income. The subsequent high volatility provided good additional opportunities for the models in equity futures and fixed income markets. March turned out to be a solid month and we are pleased to report a positive 1^st quarter for 2023.

In US fixed income, our models were leaning short at the start of the month but were able to flip long as the tsunami of buy orders entered the market on the news of the bank failures. For the rest of the month, our models played it from both the long and short side successfully. Machine learning, breakout and momentum styles were the main drivers in US fixed income. It was a similar story in European fixed income with momentum, breakout and contrarian families performing well.

F/X trading for March was challenging but with modest losses. Euro price action had led the models to lean short a few times with mixed results or small losses. Euro has traded a few handles above and below 1.07 the whole year and this generally sideways environment has been more difficult for the models. Yen’s reversal from last month’s weakness caught the models short to start the month. Profitable trading from long and short sides the rest of the month pared our losses. Machine learning and breakout styles underperformed in March.

Equities trading was another bright spot for March. European stock profits came mainly from short positions during the volatile middle of the month. US stocks signals were relatively even between short and long bets with more shorts in the first half of the month and more longs in the second half. Machine learning and contrarian were the two standout families.

Looking ahead, it seems that the only certainty is the continued uncertainty and volatility. The unintended consequences of years of central bank and regulator bailouts and meddling have yet to be fully felt and understood. We remain optimistic while continuing to work on improving our portfolio for this uncertain world.

February 2023

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RG Niederhoffer Programs Presentation – EOM February 2023 Distribution

R.G. Niederhoffer Capital Management — EOM February 2023 Performance Estimates

RGN Smart Alpha TearSheet – EOM February 2023

RGN Smart Alpha Program-DDQ EOM February 2023

RGN Smart Alpha PnL by Sector and Strategy – EOM February 2023 (estimated)

RGN-Smart-Alpha-Program – Net Monthly Returns as of EOM Feb 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.

January 2023

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Presentation – EOM January 2023 distribution

R.G. Niederhoffer Capital Management — EOM January 2023 Performance Estimates

RGN Smart Alpha TearSheet – EOM January 2023

RGN Smart Alpha Program-DDQ EOM January 2023

RGN Smart Alpha PnL by Sector and Strategy – EOM January 2023

RGN-Smart-Alpha-Program – Net Monthly Returns as of 31 Jan 2022

The final month of 2022 ended down for stocks and bonds, in line with the way both traded the whole year. Both markets however, reversed sharply right out of the gate in 2023 on the hopes of an end to the Fed tightening and an eventual pivot; for January, stocks rallied 6.3% and ten-year notes moved 2% higher. With the risk-on price action, the VIX and one-month historical volatility measures all ended the month at ten-month lows.

Against this backdrop of a “V” reversal and steadily falling realized volatility, our models didn’t find many profitable formations and found January fixed income and currency markets quite challenging.

In European fixed income, the portfolio came into the year short and was caught offsides when the market rallied vigorously the first week. Our models stayed short looking for a resumption of the down move, but the market continued to rally. The bulk of the month’s loss in European fixed income occurred during this period. Machine learning, breakout and long-term families had difficulties.

US fixed income also had similar but smaller losses at the beginning of the month. We encountered additional challenges on CPI day with machine learning and contrarian styles going short. On the month, we incurred losses from machine learning, contrarian, breakout and long-term families.

In currencies, we struggled early in the month in Canada and Australian dollar trading from short-term momentum trades that reversed quickly and had little follow through. A large intraday reversal in Yen mid-month knocked Yen trading to slightly negative for the month and the general lack of volatility in the second half of January where Euro traded around the 108.50 level everyday was less than ideal for our models. Machine learning, breakout and momentum styles incurred losses.

Equity trading provided better opportunities and we were profitable in January. Long positions from machine learning and breakout styles throughout the month generated profits.

During this drawdown, we have worked diligently on improving our portfolio and continue to do exciting research. We believe the economic and geopolitical arenas are full of challenges and opportunities will be abundant in the coming months.

December 2022

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Presentation – EOM December 2022 distribution

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

RGN Smart Alpha TearSheet – EOM December 2022

RGN Smart Alpha Program-DDQ EOM December 2022

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

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

Global stock markets finished a challenging year with a disappointing December, and the Smart Alpha Program eked out a small profit for the month. After a strong November for global equity markets, the traditional Santa Claus rally was perhaps too obvious an outcome for this highly unusual year, and the dismal close of stocks and bonds perhaps more thematic.

We are certainly pleased with the Smart Alpha Program’s performance this year — though October and November were undeniably difficult, we are happy to have returned to the positive side to close out the year.

As this chart of the Evoke Risk Parity ETF shows, it was an even more catastrophic year for Risk Parity, with stock and bond correlation rising to positive levels not seen in years (see charts 1 and 2 below).

Chart 1

Chart 2

Our performance in December was negative for most of the month, but a continuing trend in European Fixed Income, particularly late in the month, pulled our models back into positive territory at the very end of the year. After a tight range-bound market from mid-November to mid-December, a downtrend established itself, and our medium-term and shorter-term momentum models had some good opportunities through month-end. We gained a little over 2% in European fixed income, a sub-sector which has been an underperformer throughout 2022 until now.

In US Fixed Income markets, the range was even tighter, as you can see. Intraday reversals and lack of follow through in the first half of the month posed a challenge. The second half resumption of the down trend helped our models pare their losses in the subsector, but we still ended down slightly for the month. Machine learning, breakout and momentum styles gained from short positions during the second half down move. Contrarian models were the underperformers.

In currencies, the Euro drifted quietly higher before settling right around the 1.06 level for most of the month, providing few opportunities for our models. Machine learning, momentum and long-term styles incurred losses in Euro.

Dollar/Yen provided better opportunities, and we ended the month slightly positive with machine learning and momentum styles leading the way. The market was still quite range-bound, around 136 early in the month, with only one large day mid-month providing some excitement. Overall, Yen profits weren’t enough to overcome losses in Euro, and we ended down over 1% for December in the F/X sector, with a very slight positive contribution coming from other currencies.

Through today, the Fed remains resolute with its inflation-fighting strategy of continued tightening, though they admit there are potential risks of a slowdown. Clearly, the US economy is unequivocally weakening. Housing affordability is plummeting, and the stock market rally of November has faded.

The Philadelphia Fed recently revised previously robust US employment figures downward showing 1 million fewer jobs than had been reported. And on December 28, the St. Louis Fed published a paper pointing out that as of October 2022, 27 of 50 US states had negative growth using their own coincident growth indicator, suggesting the US is already in a recession.

Understanding that inflation is as much a psychological as it is a monetary phenomenon, and the need for Powell to seem as strong as possible until the moment he relents — can a Fed pivot be that far off?

With so much uncertainty and no sign of interest rates returning to historic lows of the pre-Covid era, we anticipate another year of elevated volatility. While we are agnostic to the direction of interest rates and equities, the expectation of high levels of uncertainty and volatility should provide our strategies with excellent opportunities for our Programs throughout the year.

I look forward to having the opportunity to speak with you about your views on markets and portfolio allocation during 2023, and wish you an excellent start to the new year.

Sincerely,

Roy

November 2022

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

Fed Chairman Powell’s dovish comments sent the stock market surging 3.4% in the afternoon on the last day of November. S&P500 and Ten-year Notes rallied 5.5% and 2.37% respectively for the month providing the risk on and 60/40 portfolio a boost heading into year end.

November was an especially difficult month for our models, particularly in currencies and fixed income. There were many large intraday reversals, sharp counter trend moves during times of expected continuations and a general lethargic, directionless trading dominated most of the month. These conditions caused our models to be quite inaccurate and we had one of our worst monthly Sharp in a while.

In US fixed income, the first 3 days of the mRGN-Smart-Alpha-Program – Net Monthly Returns as of 30 Nov 2022onth saw successive days of intraday reversals. Our machine learning, breakout and momentum models were whipsawed from the long and short side to begin the month. Even on the biggest rally day of the month on November 10^th when TY rallied for a little over 2 points, our models were caught flat footed to begin the day with a short position. Although we ended the day slightly profitable there weren’t more opportunities for the rest of the month. After the rally, our contrarian systems identified an over-bought condition and attempted to short the market but was not profitable. The month ended with our modest short position whipsawed as Powell’s comments sent the fixed income market rallying into the close.

In European fixed income, we also started the month losing on whipsaws from intraday reversals. Additional inaccuracies came in mid and late month after a strong rally day, our breakout, momentum and machine learning models were looking for some follow through the next day but encountered sharp reversals.

In currencies, the pattern of intraday reversals at the beginning of the month also applies to Euro and Yen trading. In the second half of the month for the Euro, we encountered two days of particularly egregious intraday reversals. Both times, we went long to have the market reverse sharply against us later in the day. Yen had a large rally on the 10^th but our models were leaning the wrong way to start the day. We turned around to go long but were not able to take advantage of the move and ended down slightly. Powell’s comments on the last day were negative for our Yen position.

Our Pound trading incurred losses on breakout and contrarian model’s attempt to sell, looking for another leg down few days into the month. The large rally on the 10^th also had our models betting the wrong way to start the day and we ended up down slightly.

We’ve encountered drawdowns and challenging periods in the past. We will continue to learn from the drawdowns and work on improving our portfolio. We believe the world of tight rope walking central bankers has not changed and opportunities abound in the future.

October 2022

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Presentation – EOM October 2022 Distribution

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

RGN Smart Alpha TearSheet – EOM October 2022

RGN Smart Alpha Program-DDQ EOM October 2022

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

RGN-Smart-Alpha-Program – Net Monthly Returns as of 31 Oct 2022

After two significant down months in August and September for equities, October ended with a historical reversal for the Dow index. From Zerohedge*, “It was the best monthly return for the Dow since Jan 1976 (+14.41%), the 2nd best month for The Dow since 1936, but the Best October for The Dow ever….” And the fact that the Dow was down on the month intraday on October 13^th adds to the impressiveness of the rally. It is perhaps also a reflection of the jittery and volatile state of investor psychology and the markets. The other sectors in October followed a similar blueprint with second half reversals from the prevailing trend.

For our models, October was a challenging month in European fixed income and F/X. The European fixed income started October with a sharp rally. Our models shorted that move successfully but were caught subsequently looking for a resumption of the rally. Several intraday reversals in the middle of the month also hurt short-term momentum. Finally, the move back down had us leaning short for the late month rally back up. Momentum, machine learning and breakout families were underperformers. US fixed income was up slightly for the month with the price action keeping our models biased short throughout the month.

The lead story in F/X for October was Japan spending a record 6.3 trillion Yen ($42.4 billion) to prop up the rapidly falling Yen**. These interventions have been a negative to our P&L but the models managed to end October unchanged to down slightly in Yen. The Euro, on the other hand, was challenging for the machine learning and breakout families. The Euro rally to start the month caught our models short. We then regained some profits but just as in the European fixed income, our models turned a bit bullish as the market sold back down.

With two more months to go for 2022 there seem to be more questions than answers. Will the Fed pivot? What will be the mid-term election results and how will the new political landscape affect policy, central banks and markets? Will inflation come down or will we have stagflation? Challenges abound and we continue to see opportunities for our models.

**https://www.bloomberg.com/news/articles/2022-10-31/japan-spent-42-billion-in-october-to-prop-up-yen-in-markets

*https://www.zerohedge.com/markets/bonds-battered-bitcoin-bid-dow-soars-best-month-48-years

September 2022

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Presentation – EOM September 2022

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

RGN Smart Alpha TearSheet – EOM September 2022

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

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

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

September is historically the worst month for equities and this September certainly lived up to this reputation with the S&P 500 falling 9.2%. The September swoon came on the heels of a 4% drop in August. Investor portfolios have taken a bruising but what’s different this year and causing even more pain is the decline of fixed income coinciding with the equities. The Ten-year note was down 3.5% in August and down 4.14% in September. In fact, a 60/40 portfolio this year is already down more (-20.69) than in all of 2008 (-19.44).

We are happy to report that our models continue to perform well in September’s volatile fixed income, currency and equity markets. September and August’s above average returns solidified the 3^rd quarter as one of our best historically.

In US fixed income, we had a solid month profiting predominantly from the short side with machine learning, breakout and long-term families leading the way. Contrarian models, on the other hand, found the environment difficult. European fixed income was also profitable with breakout, momentum and long-term in the plus column.

In F/X, we were overall profitable with profits in Euro, Cad and Aussie overcoming losses in the Yen. On September 22^nd, Japan intervened in the f/x market for the first time since 1998. The sudden Yen buying right on the lows caught our models off-side and we incurred losses from the intervention. Euro, Cad and Aussie profits came from machine learning and contrarian models.

With one quarter left to the year, the markets are seemingly more precarious than ever. We continue to expect volatility to remain elevated and seek opportunities for trades with good risk/reward profile.

August 2022

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Program Presentation – EOM August 2022 Distribution

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

RGN Smart Alpha TearSheet – EOM August 2022

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

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

RGN-Smart-Alpha-Program – Net Monthly Returns

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.

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 Monthly 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.

JUNE 2022

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 Monthly Returns

MANAGER COMMENTARY:

June 2022

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.

ARCHIVE

MAY 2022

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 Monthly Returns (Onshore) from 16 Nov-18

APRIL 2022

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 Monthly Returns (Onshore)

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

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)

ARCHIVE

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)

January 2022

The new year began with a burst in Omicron and an even bigger burst of market volatility. The highly contagious variant spread like wildfire across the world and the markets were seemingly infected with its own inflation fear, geopolitical uncertainty and Fed doubt virus. The SP500 plunged 11% before staging a strong rally the last week to end January down 5%.

The US fixed income market, after drifting sideways for December came under heavy selling pressure during the first week of the year, then was rangebound with moderate volatility for the rest of the month. We had a strong month in US fixed income led by machine learning, breakout and momentum families, particularly our short duration models.

While the decline in the US 10Y felt large given this market’s quiet rangebound character for the last three quarters of 2021, it’s important to compare this move to the decline in February 2021 (twice the size of January 22’s move) and the rally in February ’20 (4x the size).

European fixed income trading ended unchanged to down slightly, bringing our overall fixed income profit to about 5%.

Currency trading was choppy and more challenging. Euro FX had an uptick in volatility but its false breakout on the upside was a negative for our breakout family which incorrectly anticipated a continuing move up early in the month. Later in the month, it made an attempt to the downside near 1.11, but this move as well has now reversed back into the 1.14 level.

Yen and Pound trading were also in the negative column with machine learning and breakout families incurring losses. The momentum family profited in Euro and Yen but overall, trading in FX ended down for January nearly 2%.

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Program Presentation – EOM January 2022

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

RGN Smart Alpha Program TearSheet – EOM January 2022

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

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

December 2021

2021 came to a close with a year end surge in both equities and Covid cases. Despite the challenge of higher inflation for equities and a yearlong battle against the virus, 2021 ended similarly to 2020…with equities on the high and Covid-19 on everyone’s mind.

For fixed income and currency markets however, activity was decidedly more muted. The Euro traded with an extremely tight <1.5% range for the entire month, and traded at the current 1.13 level almost every single day for the whole month. As often occurs during tight range-bound months like this, losses were incurred in machine learning and momentum families, which inaccurately predicted movement away from the 1.13 level.

$/Yen, on the other hand, was a bright spot in FX trading, with machine learning able to profit from the move back toward the lows in Yen. Other currencies were also relatively quiet with small losses. The currency sector ended December down slightly, with all profits and losses confined to a few tens of basis points.

The US 10Y moved in a 1 ½ point band for the month and although our contrarian family performed well, losses from machine learning, breakout and momentum families tilted the US fixed income overall to a slight negative. European fixed income was also a slight negative for the month with breakout in the plus column offset by losses from momentum.

With a committed hawkish Fed, the start of January has seen much greater movement in all sectors, with perhaps the beginnings of a sustained rise in interest rates similar to the start of 2021. Despite the broad impact of omicron, the risks to the economy appear to be more on the inflationary side, and we are extremely optimistic about the year ahead.

CLICK LINKS BELOW TO DOWNLOAD MATERIALS:

RGN Smart Alpha Program Presentation – EOM December 2021

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

RGN Smart Alpha Program TearSheet – EOM December 2021

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

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

November 2021

The news of the Omicron coronavirus variant in the last days of November derailed what was until then a positive trading month. Our models found the jerky market reactions to the news to be difficult and we ended the month in the negative column.

A bright spot in November was our currency sector, with profits in all the currency pairs. The strengthening of the dollar provided good opportunities for our models. Although our models gave back some profits over the last few days of the month, they nevertheless turned in solid performance for November. Gains were led by Euro trading, with machine learning, momentum and breakout performing well.

On the flip side was our fixed income trading in November. The US fixed income rally in the early part of the month had our models leaning the wrong way when the market turned down. Prior to the highly bullish Omicron news, our models were leaning short with fixed income hovering on the lows of the year. Machine learning and breakout families were the biggest underperformers and contrarian family turned in a slight profit.

December has started off with a dramatic increase in equity realized volatility. The coronavirus situation continues to make headlines and the Fed is talking of an accelerated taper. We continue to see good trading opportunities going into year-end and beyond.

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)

October 2021

October began with fears of China Evergrande’s default triggering a financial crisis. Stocks sold off in early October with option premiums rising in anticipation of a potential multi-sigma move. The feared Lehman 2 moment didn’t materialize and for the rest of the month, stocks rallied strongly and option premiums sold off precipitously.

The fixed income sector continued its downward march in October with inflation fears weighing heavily on investors. In late October we witnessed a VAR shock in the Australian and Canadian short end with the Australian 2-year yield jumping from 0.12% to 0.62% in three days. The calm expressed by the low implied volatility in stocks contrasts glaringly with the fear communicated by the near yearly high fixed income implied volatility.

On the performance side, October ended up slightly with fixed income trading up and FX trading down. Our models were positive in US fixed income and flat in Europe. Machine learning and contrarian families were able to profit from the relatively volatile US fixed income. It was more of a mixed performance in European fixed income, although the contrarian family profited there as well. Our momentum models and longer-term models were positioned for further rises in rates toward the end of the month, but long rates actually fell somewhat during the last few days of October and we gave back some earlier profits there.

The breakout in the Japanese Yen to multi-year lows was positive for our models. Machine learning, breakout and momentum families fared well in Yen. The Euro, however, was a different story. After making new lows in September, it spent all of October trading around the 1.16 level. The relative lack of movement and direction proved difficult for ML, breakout and momentum families. Other currencies were similar to Euro and ended slightly down as well.

The seemingly incongruent spread between equity and fixed income implied volatility plus the recent breakdown in the once very stable short-end of the curve makes for a very interesting finish to 2021.

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