Discretionary trading – Q1 2019 commentary

Instruments traded
FX spot and CFDs
Asset classesFX, equity indices, commodities, government bonds
Investment styleDiscretionary (non-systematic), volatility, opportunistic
Quarterly return–3.9% (before fees but after any trading costs)
Quarter daily return volatility1.1%
Average trades per week13.1 (since inception)

Market overview

In the first quarter of 2019, stock markets staged an impressive recovery from last year’s steep declines, which is uncommon in such a short period of time. This fast turnaround is reminiscent of 1998, when markets were aided by the Fed pivoting from interest rate hikes to outright cuts – while in the present scenario a surprise pause (rather than cut) has been signaled. 

The most important event in Q1 2019 was a dovish turn of global central banks, with the Fed signaling the end of interest rate hikes and quantitative tightening at the core. Still, according to the strategy manager, the rally looks more to be a function of overdone selling than anything else. Declines to the level of  -20% usually indicate the beginning of a bear market or signal bigger problems in either the economy or financial market. So far, recent data releases are indicative of only a mild cyclical downturn in global manufacturing. The December declines prove that – with the current market structure of thin liquidity and a dominance of algorithmic participants – outsized moves are experienced without the justification from macro economical fundamentals.

Regarding bond markets, dovish central banks have enabled bonds to rally. Currency markets are in a state of low volatility, one of the quietest periods in decades with no major trends. As the Brexit process approaches an outcome GBPUSD will likely incur more substantial price movement while, so far, the string of confusion and extensions has produced a whipsaw market. Commodities experienced modest moves – except for oil, which has been recovering from last year’s declines in synchronicity with stocks.

Portfolio performance

Jan +2.1%
Feb –5.8%
Mar –0.1%

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

There was a small retracement in Q1 2019, principally driven by unfavourable GBPUSD trading performance, whereby the strategy’s attempts to anticipate the resolution, and subsequent extensions, of Brexit worked against positioning. 

Performance from stock market exposure was positive – however, the strategy failed to profit significantly from the long side of the market. A long position taken in late December was placed on the basis the market selloff was overdone. But the extent of the rally was unanticipated, meaning fewer gains were realised than the recovery offered. After the Fed's meeting on 30 January, the “full pivot” sentiment became apparent and a continued rally became probable, but with the strategy already closed-out of the (long stock market) position, the risk/return opportunities of re-entering were less favorable.

Performance summary

Q1 2019
3 year
Since inception
 11533% (05.01.2011)

(Returns include transaction costs but are before service and performance fees. Performance before 2016 represents data before it was made available via SaxoSelect)



A consideration for stocks is determining if we are now back to a low volatility regime. In 2017, we saw maximum corrections of a mere 3.3%. Although volatility is diminishing, the strategy manager does not believe we are in quite the same scenario, anticipating 2019 corrections of at least 5%, which makes swing trading feasible. 

The strategy manager continues to believe we are in a “deal or no-deal” situation regarding Brexit, which will produce trade opportunities.  That said, if activity does not pick up in the near term, other themes above Brexit may be more attractive and opportunistic. There is also an opportunity to trade USD due to the upcoming US-China trade deal. With hawkish monetary policy around the world on hold, the strategy manager expects markets to be sensitive to economic data as we are in late stages of economic expansion.

We look forward to providing further comments, next quarter.  

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