Discretionary trading – Q3 2019 commentary

Market overview

In Q3, many of the major asset classes enjoyed positive returns — including equities, bonds and precious metals. This was despite clearer signs of economic slowdown, which coincides with the tech companies reaching a period of deterioration and Elizabeth Warren gaining traction for the 2020 election.

Central banks across the globe pushed markets into positive territory this quarter by taking an accommodative stance to stimulate the economy. Additionally, the latest round of company earnings announcements, whilst not magnificent, were predictable and in line with expectations, supporting short-term confidence. 

Reaping the benefits of dovish central banks were bond markets, which continued to rally throughout Q3. For now, markets expect 0% to be the normal across the globe. There’s increasing expectation that the US will join, backtracking on the rate hikes encountered throughout 2018.

Gold is traditionally an investment play during negative market sentiment, including when real rates fall (interest rates adjusted for inflation). In line, gold performed well over the quarter, breaking out from (above) multiyear highs. 

Portfolio performance

(Returns include transaction costs but are before service and performance fees.)

Having given back returns throughout much of the first half of 2019, the strategy enjoyed healthy gains in Q3.

Contributing to strategy performance were positions benefiting from the volatility incurred by precious metals, and also from bond market movement.

Risk taken in equities was not rewarded in Q3.  Returns in the past couple of years have been dependent on catching big outsized moves, permitting a bleeding of performance until capturing a substantially positive and persistent move. Current market conditions indicate targeting a more clinical and smaller win, rather than anticipate a “killer” trade move. 

Outlook

The strategy manager expects opportunities driven by volatility in equities, bonds and precious metals markets in Q4. They may also consider capturing “noise exploitation”, as there is a lot of headline, algorithmic trading that can drive movement away from prices reflective of market sentiment.

Currencies have not posed any attractive opportunities for the strategy manager this year, although there is potential for an outsized move in the GBP market if a Brexit resolution can be attained. Trading performance will very much depend on execution, an area in which the strategy manager is focused.

We look forward to providing further comments next quarter.