Tactical Strategy Heat Map for November 2021 by Kettera
In November 2021, the emergence of the Omicron COVID-19 variant introduced significant uncertainty and volatility across various financial strategies. This turbulence affected long-term systematic trend strategies, industrial and agricultural commodities specialists, FX strategies, and more.
Long-term systematic trend strategies likely faced challenges due to heightened market volatility and shifting economic indicators. The variant caused sharp movements in asset prices and risk sentiment, affecting trend-following models that depend on persistent price momentum. For example, Treasury yields rose moderately while the dollar and commodity prices fluctuated as investors reassessed Omicron’s economic impact[1].
Industrial commodities specialists saw notable impacts as oil prices initially dropped due to Omicron fears but then rebounded strongly, reflecting uncertainty about global demand and supply. Brent crude oil recovered almost 5% following initial declines, as market participants digested potential disruptions and OPEC’s responses[1]. Supply chain issues risked disruptions too, with new COVID variants threatening economic outlooks, particularly from China, a major industrial commodity consumer[4].
Agricultural commodities specialists were affected by similar uncertainty stemming from potential global supply chain disruptions and changes in demand. Although specifics on agricultural prices are less detailed in the results, the variant’s impact on global supply chains and inflation could influence agricultural inputs, transportation costs, and export/import dynamics[4].
FX strategies experienced mixed influences. The Colombian peso, linked to oil prices, showed mixed sentiment driven by changes in risk appetite after Omicron’s discovery[1]. More broadly, increased volatility around the variant influenced currency markets as investors shifted between risk-on and risk-off assets. The 3-month dollar Libor rate fell slightly, while Treasury yields and major currencies adjusted as markets priced in new COVID risks[1].
The Omicron variant triggered heightened volatility and risk reassessment, impacting long-term trend strategies through disrupted momentum signals, causing swings in industrial and agricultural commodities markets due to demand/supply uncertainty, and producing mixed FX outcomes as investors navigated renewed pandemic risks[1][4].
Notably, managers that maintained a substantive long position in the US Dollar against the currencies of emerging market and commodities-based countries fared the best[1]. On the other hand, short Fixed Income positions were hit badly as the world went "risk-off" following the Covid news[1].
Investors in the energy sector were also affected. Many energy specialists were either long outright or held long-biased relative value spreads, but long Crude positions were hit hard across the LTTF managers followed[1]. Metals traders were generally down on the month with losses in base metals spreads, and precious markets, namely long platinum positions[1].
Global equities, which had hit all-time highs earlier in the month, sold off quickly in the last days of November[1]. The most popular position among FX managers appeared to be long USD / short euro[1]. Model-based and systematic currency specialists seemed to have an edge in November, versus their discretionary brethren[1].
While FX managers, in the aggregate, had one of the best months in some time, there was a large variance in returns among programs[1]. A few natural gas traders avoided the petroleum carnage and profited substantially by only focusing on short exposure to N.American natural gas markets[1].
The comments from Moderna's CEO about the ineffectiveness of Covid vaccines on the Omicron variant caused significant reversals in these trends on November 26[1]. The indices and financial benchmarks mentioned are for illustrative purposes only, do not reflect the impact of advisory fees, and do not necessarily reflect the views of the author or publisher[1].
It is essential to note that the views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group[1].
[1] Source: Various financial publications and indices.
- Technology advancements, such as algorithmic trading systems, may have played a crucial role in helping investors navigate the volatility caused by the Omicron variant, as these tools can quickly process vast amounts of data and adjust strategies accordingly.
- Given the challenges that long-term trend strategies, industrial and agricultural commodities specialists, and FX strategies faced due to the Omicron variant, some investors might consider diversifying their portfolios by exploring technology-driven investment opportunities in sectors less susceptible to pandemic-related market turbulence.
