The increase in volatility that we saw in August continued into September. This volatility was fueled largely by investors’ concerns about global growth. Despite the Federal Reserve leaving interest rates unchanged and dovish comments from Fed Chairman Yellen, the equities market continued to tumble. Of particular concern to market participants was the Fed’s mention of suppressed inflation in part stemming from weakness in the Chinese economy.
 
Equity markets sold off around the globe, with the S&P 500 falling 2.5% and the MSCI EAFE Index falling 5.1% over the course of the month. The Chinese economic weakness continued to weigh on emerging markets, particularly commodity exporters. Following China’s attempt to bolster its falling equity market and de-facto devaluation in August, investors are left fearful of a substantial Chinese economic slowdown and its associated diminished demand for commodities. These sentiments had a “knock on” effect on emerging markets - particularly the stock markets and currencies of commodities exporters, as both generally experienced significant declines during the month.
 
Nonetheless, the majority of Hydra programs were positive on the month.
 
Global Macro:  Although the HF Intelligence Macro Index finished down an estimated -0.45%, the observed programs in the industry appeared to be a mixed bag. The common theme among macro programs appeared to be gains in FX and commodities, with losses in equities and fixed income. The top winning position in FX in September seemed to be long USD or JPY while short emerging currencies, particularly those linked to the commodities sector. The timing question these programs was when to avoid, or return to, risk assets. Our best macro performer ended the month up +1.89%.
 
Systematic Trend  With the Newedge Trend Index ending the month up +2.29%, one could call September a good month for the strategy. What was most interesting about this category was not merely how they parted ways with their global macro brethren, but the source of their respective returns (and losses). In contrast to the difficulties that discretionary macro managers had with the interest rate markets, fixed income appears to have been the largest source of returns over the month for this style sector. In fact, many medium-term systems caught the rally in bonds in the wake of the US Fed's mid-month announcement. A close second were the commodities markets (ex grains) - most notably in energy markets. Also, the mid-month turnaround in equities seemed to have a minor effect on trend programs, thanks mostly to the fact that August volatility in this sector forced most systems to minimize exposure to equity indices. Conversely, many trend programs struggled with FX, a sector that fueled gains in discretionary programs.
 
Commodities Strategies:  It was a strong month for the grain markets, which is where most all of our commodities managers focus. The main driver behind the performance being indications that supply is tighter than expected. In particular, the USDA’s National Agricultural Statistics Service (NASS) reported the largest ever reduction in current soybean stocks as well as a substantial reduction in estimated wheat production. In the aggregate, commodities managers did not benefit from these market moves as evidenced by the BarclayHedge Ag Index returning -0.22%. Hydra’s best commodities manager finished up +3.21%.
 
Currency Strategies:  With the U.S. Fed issuing mixed signals, most major currencies were choppy and sideways through the month, while many emerging currencies continued to slide at the prospect of higher U.S. rates. In the majors, despite signs of weakness in the U.S. economy most G10 units failed to show much strength against the USD. FX traders found more fertile ground trading cross rates trades shorting the Aussie or Canadian dollar, as well as other “commodity” currencies. In the emerging realm, remarks from the U.S. Fed suggesting the central bank could still raise rates this year sparked fresh selling during the last week of the month, with the Malaysian ringgit and Indonesian rupiah falling to their lowest levels since the Asian financial crisis in 1998. Most FX managers generally had a mixed month.
 
Short-Term / Higher Frequency:  After a challenging summer, September saw most short-term programs come back to life. Just about every short-term program on Hydra capitalized in one sector or another, with interest rates being the only sector that did not seem to offer outsized opportunities. Some managers performed remarkably well in equities, as they were able to navigate the mid-month turnaround better than longer-term systematic trend programs. The Hydra Short-Term Managers Index finished the month up +1.60%. Our best short-term program for the month gained +3.92% on the month.

Jon is CEO of Kettera Strategies, the operator of Hydra — a platform registered with the U.S. Commodity Futures Trading Commission — that allows qualified investors access to easily invest in a carefully curated array of CTA, FX, and Macro strategies.