Dimacos Diversified Program, Market Review for January 2017
In January 2017, Dimacos Fund declined by -1.94%. The predominant driver of this was market unease resulting from a number of unorthodox moves by the newly-elected US President, Donald Trump. Since the US President’s inauguration, a combination of market protectionism rhetoric and an executive order to ban US Entry by citizens of seven, predominantly Muslim-resident countries, have created significant market anxiety as to whether, going forward, Trump will indeed make good on all those unconventional policies he declared during his campaign. The market euphoria that dominated since US Elections was replaced after mid-January, by scepticism whether the effect of his pro market declarations (deregulation, fiscal spending, lower taxes) will win over any protectionist and market restrictive measures he may take.
Dimacos Fund stayed broadly flat for the most part of the month but towards the end of the month, when the news above dominated the markets there was a risk-off sentiment developing that hit predominantly our risk-on positions. We accumulated some gains in equity indices and commodities albeit not sufficient to offset the losses that developed in currencies and to a lesser extend interest rates and individual equities.
Our strategy, as expected, reduced risk slightly within currencies and a few loss-making commodities to reflect the less-bullish environment that emerged. Going forward, our Program will monitor how the market develops and gradually position itself defensively where risk-off persists or measurably attacking where the market gives us good opportunities at an acceptable risk. We can only trade what the market gives us not what we hope for. Provided we position ourselves where opportunities develop with disciplined risk mitigation, our Program will be able over the long term to generate attractive rates of return at an acceptable risk.
Over the last six years to-date, it has been particularly challenging times for managed-futures strategies. We had a good boost between April 2014 and March 2015 particularly due to our diversification beyond futures, into equities. However, since then, there have not been many good profit capturing trends, not just for us but the managed futures industry in general as evident also by the SG CTA Index. Equally important equities did not perform very well ever since. One thing that we are firm believers in, is that profit capturing trends do not just disappear permanently. In a world with different economic cycles, interest rates, currencies, capital flows, geopolitical dynamics and levels of economic development across counties, in a world where fear or greed eventually emerge, profit capturing trends can only be buffered temporarily. Eventually they get unleashed otherwise markets would be in disequilibrium. When that happens, managed futures are the primary strategies that typically outperform. Prior to that, risk control (and for us diversification into equities) becomes the main theme.