Discretionary trading – Q3 2019 commentary

Instruments traded
FX spot and CFDs
Asset classesFX, equity indices, commodities, government bonds
Investment styleDiscretionary (non-systematic), volatility, opportunistic
Quarterly return+5.28% (after trading costs but before any management and performance fee)
Annualised return volatility26%
Average trades per week13

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

Jul–6.2%
Aug+13.9%
Sep–1.4%
3-year
41%
Since inception (0.5.01.2011)10149% 

(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.  

Any information found in this document, including performance information and statistics are subject to change. You can find the latest updated pricing information on the description page for each available portfolio. In providing this material Saxo Bank has not taken into account any particular recipient’s investment objectives, special investment goals, financial situation, and specific needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in a particular manner and Saxo Bank assumes no liability for any recipient sustaining a loss from trading in accordance with a perceived recommendation. All investments entail a risk and may result in both profits and losses, and all capital is at risk. In particular investments in leveraged products, such as but not limited to foreign exchange, derivatives and commodities can be very speculative and profits and losses may fluctuate both violently and rapidly. Speculative trading is not suitable for all investors and all recipients should carefully consider their financial situation and consult financial advisors in order to understand the risks involved and ensure the suitability of their situation prior to making any investment, divestment or entering into any transaction. Any mentioning herein, if any, of any risk may not be, and should not be considered to be, neither a comprehensive disclosure of risks nor a comprehensive description of such risks. Any expression of opinion may not reflect the opinion of Saxo Bank and all expressions of opinion are subject to change without notice (neither prior nor subsequent).

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