The pain trade vs the crowded trade vs the rotation trade
The past few weeks have been challenging for most traders and Hedge Funds. The pain trade has been long Tech, the rotation trade in value and cyclicals while crowded longs have been underperforming. A few examples:
1) oil prices were supposed to go up but reversed brutally couple of weeks ago.
2) USD was supposed to weaken due to twin deficit policy in the US but has strengthen.
3) FANG+ were supposed to go down, being a huge performer last year and supposedly crowded, but it is up, only AAPL & AMZN have underperformed S&P 500.
4) EMs should have ridden on the new commodity Super Cycle bull, but they are flat YTD, after the huge run in Jan and Feb.
The markets have undoubtedly been choppy and erratic lately, hard to navigate.
Most Hedge Fund strategies are now showing losses for the month, according to Morgan Stanley's review. HFs were only posting small gains through mid-month despite strong equity index returns, and since then they have captured a large portion of the market downside.
Performance across the more crowded names in particular has contributed to HF losses across all regions. And this year alpha generation has been the weakest YTD since the last 6 years.
When in doubt stay out, or apply a very solid p/l management methodology, which most lack...
1) oil prices were supposed to go up but reversed brutally couple of weeks ago.
2) USD was supposed to weaken due to twin deficit policy in the US but has strengthen.
3) FANG+ were supposed to go down, being a huge performer last year and supposedly crowded, but it is up, only AAPL & AMZN have underperformed S&P 500.
4) EMs should have ridden on the new commodity Super Cycle bull, but they are flat YTD, after the huge run in Jan and Feb.
The markets have undoubtedly been choppy and erratic lately, hard to navigate.
Most Hedge Fund strategies are now showing losses for the month, according to Morgan Stanley's review. HFs were only posting small gains through mid-month despite strong equity index returns, and since then they have captured a large portion of the market downside.
Performance across the more crowded names in particular has contributed to HF losses across all regions. And this year alpha generation has been the weakest YTD since the last 6 years.
When in doubt stay out, or apply a very solid p/l management methodology, which most lack...