Dimacos Diversified Program, Market Review for December and Year 2016
December was a good month for Dimacos Fund which trades the Dimacos Diversified Program, with a net monthly return of +3.84%. We managed to outperform the SG CTA Index which delivered +0.81% as well as the S&P 500 which made +2.03%, including dividends. Most of our holdings were productive this month, with currencies, indices, interest rates and commodities making a significant positive contribution. Past November 8th, with Donald Trump voted as the next US President, market expectations converged towards higher government spending by the new administration, inflationary pro-market policies, deregulation, lower taxes and inevitably higher interest rates. This boosted the US Dollar as well as equities and created some good, profit capturing trends in the aforementioned asset classes. Back in October we made an educated guess that once interest rates start moving, trend-following strategies will start delivering again as profit capturing trends will emerge, particularly in interest rate instruments, currencies and bonds. Since November 8th, it appears we were right.
For the whole of 2016 we were slightly negative at -4.15%. We had good performance right after Brexit and the US Elections. Notable good performance was also January and February despite the equity markets turmoil at the time. These were not sufficient though to cover losses in March, when the market reversed abruptly from the January and February declines, and October following the pre-elections market turmoil and uncertainty as to the elections result. Although we closed the year slightly negative, we have accomplished a lot during 2016.
|Dimacos Fund||SG CTA||S&P500|
January: China held the world centre stage with a 21% plunge of the CSI300. World exchanges followed with the S&P registering negative -4.98%. Thanks to our Futures diversification we stayed positive for the month at +1.90%. In January Dimacos Fund was listed on the BarclayHedge Database under the name Dimacos Capital Ltd (Diversified) giving eligible investors full transparency of the Program and its performance metrics.
February: The stock market rout continues until mid-February with the S&P at some point loosing -6.6%. Oil continues to drop reaching $28.50 and UK enters an uncertain period with the June referendum to exit the EU officially announced. Our Futures diversification provided good protection again with the Fund up +2.54% for the month.
March: Sharp reversal and risk-on was the tone of the month with the S&P bouncing off its lows to a +6.73% after two turbulent months. All Managed Futures programs suffered as a result of being caught on the other side of the equation, our selves included. We closed the month -6.67% all from our Futures portfolio and despite good profits in our equity holdings.
April: The positive equities sentiment continues with the S&P adding another +0.39%. After a couple of adjustments to our portfolio, coupled with good profitability in our equity holdings, our Fund limited its losses from futures to -1.25%. This compares favourably to our peers in the SG CTA Index which are predominantly futures-based programs.
May: Aside equities which continued their upward trend, most other asset classes exhibited predominantly a range-bound behaviour making it particularly challenging for our futures portfolio. Despite some additional adjustments to limit risk and profits in our equity indices holdings, our futures losses gave us a net result of -2.84%. On 4th of May, Dimacos Capital attended the Hedge Fund Emerging and Startup Manager Forum in London. Furthermore, following significant subscriptions received from US-Dollar based institutional investors, we launched a USD-denominated share class to cater for this investor group wishing to invest in our strategy.
June: The UK stole the world centre stage with the inconceivable Brexit voted in the referendum. As expected, there was a major turmoil in the markets with the GBP losing more than 10% in the last week of the month alone. Equities inevitably stalled and all other asset classes got into a defensive mode. In this turbulent environment our Fund leaved up to its name as a great diversifier netting +8.27%. Our defensive positions in bonds and currencies as well as weather-driven commodities were great contributors whilst our strategy moved quickly to limit risk as it developed and capitalise on additional profitable opportunities on the short side.
July: The Brexit effect faded quickly with the S&P marching on additional +3.65% in performance. Despite the, once again, switch in sentiment, we managed to protect most of the June profits giving back roughly -1.62 all of it from our currency and commodity holdings. This constant change of sentiment is particularly challenging for managed-futures programs and the focus switches to risk management as opposed to opportunities searching. Furthermore, significant subscriptions were received in the EUR share class from institutional investors.
August: A rather quiet month for equities with the S&P broadly flat at a mere +0.12%. We did slightly better in this environment, netting a +0.78%, mainly from our equity, bond and commodity holdings. The SG CTA suffered significantly as the absence of equities in its constituents did not provide any significant protection.
September: A stressful environment dominated the markets, following uncertainty over US interest rates and the result of US elections. Most asset classes continued their never-ending whipsaw behaviour making it very challenging to accumulate profits in futures-based strategies. Again the focus was on risk management with losses from whipsawed holdings offset by the limited profits the markets gave us. In September Dimacos Capital Ltd partners with Numisma Capital Ltd to bring Dimacos investment strategies to institutional and professional investors. Numisma Capital will offer the Dimacos strategies as a separately managed account, starting with the Dimacos Diversified and Dimacos Futures Programs. Furthermore Dimacos Fund appointed Numisma Capital Ltd as its investment advisor thereby benefiting from the quantitative expertise of the Firm as well as the enhanced compliance and regulatory oversight and robust risk management framework pertaining to MIFID investment firms. Additionally Dimacos Capital launched its new website at www.dimacos.com presenting in a modern, dynamic and user-friendly manner the systematic strategies we are developing.
October: There was significant anxiety in the markets as Donald Trump appeared to be winning in the polls, especially following a reopening of an FBI investigation against Hillary Clinton’s email practices. Major reversals appeared in the bond markets following lower expectations for future Q/E stimulus. Large reversals also appeared in most commodities. In this environment our Fund was particularly hit netting a -7.20%. Most asset classes were negative contributors with only exceptions in short GBP and long FTSE 100. On 19th of October, Dimacos Capital attended the Hedge Fund Emerging and Startup Manager Forum in Zurich. Additional significant investments received from our EUR and US-Dollar institutional investors.
November: Another month of surprises with Donald Trump voted as the 45th US President. An initial market crash, following the result, faded quickly and markets reversed into an optimistic mode that carried through to December. Investors discounted higher government spending by the new administration, inflationary pro-market policies, deregulation, lower taxes and inevitably higher interest rates. This proved particularly helpful for our portfolio reversing nearly all losses that crippled in the days leading up to the election.
December: The “Trump” effect continued in December giving a great boost to our Program and limiting our annual losses for Dimacos Fund to -4.15%. Managed-Futures Programs found 2016 a difficult year as evident from the SG CTA Index result of -2.68%. Our increased diversification into equities provided some good protection hence the slightly better risk-adjusted result (on a same volatility basis our result was -2.49% vs -3.15% for the SG CTA).
What a year 2016 was! It reminds us of a very important lesson; that the unexpected happens more often than we think. 2016 will be remembered mostly as the year that Britons voted to leave the European Union and the year that Donald Trump, against all odds, became the Republican Party nominee for the US Presidency and then became the 45th US President.
As humans, we have the tendency to label extreme events as rare simply because, due to their extraordinary nature, we associate them with a very low chance to occur. The year that just passed proves that this is a flawed assumption. One unnatural event on its own may rarely happen. However, in a world of seven billion people there are thousands of “potential” unnatural events, making the chance of a few happening, a not-so-rare phenomenon. This year it was Brexit and Donald Trump. Who knows what we’ll get in 2017.
From an investing angle, this is why one needs to have an investment strategy that is adaptive to world events as they unfold. Furthermore, the portfolio needs to be reasonably diversified across asset classes that are independent of one another. Finally the strategy should have the capability to generate positive performance from upward moves in the markets as well as downward moves. All these, coupled with systematic and unbiased risk management are wrapped up in our investment program, Dimacos Diversified. Our Program, like every investment strategy out in the market, cannot guarantee positive performance all the time. What it can deliver though is adaptability to the markets, diversification of returns and systematic investment management, free from human bias.