do interest rate hikes hurt trend followers?

K

killATwill

I invest in a couple trend following funds (which haven't been doing that well, lately) and I just out of curiousity I decided to correlate the performance of these funds with the 3 month note.

Pretty interesting stuff. It looks like during the the last 3 interest rate hiking cycles the funds perform poorly (10-20% down in a year), however, once the fed stops and reverse these funds do very, very, well (earning 50-60% over a span of two to three years).

Anyone have any input as to why this is?
 
Perhaps there is a transitional phase as many of the sectors are turned over or flipped during the latter stages of interest rate hikes. In turn, there is less capital committed and trends do not emerge since there is less clarity in terms of when the cycle will end. This might also be a reason why the Federal Reserve has moved more towards telegraphing its' intent very deliberately. They recognize that there have been times in the past when the rate hike cycle endured longer than market participants had expected and had very negative consequences for the capital markets as big money was caught completely offsides.
 
Quote from killATwill:

I invest in a couple trend following funds (which haven't been doing that well, lately) and I just out of curiousity I decided to correlate the performance of these funds with the 3 month note.

Pretty interesting stuff. It looks like during the the last 3 interest rate hiking cycles the funds perform poorly (10-20% down in a year), however, once the fed stops and reverse these funds do very, very, well (earning 50-60% over a span of two to three years).

Anyone have any input as to why this is?
More...


My conjecture: Could it be that the uncertainty of rate increases/decreases leads to non-trending markets and hence numerous stop-outs for trend followers? Once the rate increase/decrease is officially deemed complete, it removes uncertainty and the markets can start trending the direction they were initially headed. This can be easily backtested if you have the resources. Maybe someone can post the results.
 
i think this is an interesting idea. my guess is that it does have something to do with a larger perceived uncertainty in rate hike cycles. qualitatively, i can recall throughout this rate cycle analysts chiming in that the fed would rase a quarter, a half, or stop.

Nevertheless it poses some intersting questions in terms of asset allocation.

Quote from mhashe:

My conjecture: Could it be that the uncertainty of rate increases/decreases leads to non-trending markets and hence numerous stop-outs for trend followers? Once the rate increase/decrease is officially deemed complete, it removes uncertainty and the markets can start trending the direction they were initially headed. This can be easily backtested if you have the resources. Maybe someone can post the results.
More...
 
Why that is???............Randomness? What correlation do you notice between your funds and the CRB(which is mostly influenced by crude oil) and the S&P-500? Be sure that your funds are managed by trend-followers and are not "glorified index funds".
 
Fabulously on target post.
Quote from jackbyrd:

Perhaps there is a transitional phase as many of the sectors are turned over or flipped during the latter stages of interest rate hikes. In turn, there is less capital committed and trends do not emerge since there is less clarity in terms of when the cycle will end. This might also be a reason why the Federal Reserve has moved more towards telegraphing its' intent very deliberately. They recognize that there have been times in the past when the rate hike cycle endured longer than market participants had expected and had very negative consequences for the capital markets as big money was caught completely offsides.
More...
 
Quote from jackbyrd:

Perhaps there is a transitional phase as many of the sectors are turned over or flipped during the latter stages of interest rate hikes. In turn, there is less capital committed and trends do not emerge since there is less clarity in terms of when the cycle will end. This might also be a reason why the Federal Reserve has moved more towards telegraphing its' intent very deliberately. They recognize that there have been times in the past when the rate hike cycle endured longer than market participants had expected and had very negative consequences for the capital markets as big money was caught completely offsides.
More...

More academics from someone that has no idea what he is talking about.
Another typical "cut and paste" job to influence friends and family.
Perhaps one of these days you will share an original and genuine thought with ET . . . but most of us are not holding our breadth.
 
err...no because any effect of any rate hike will be anticipated and be represented in the trend hence the trend follower would just ride it out with the adjustments.If the hike would result in a non trending equities market (like right now) - a trend follower would just go fishing until things change or trade interst rates or gold or oil?
maybe time to do your own thing instead of managed funds?
 
You must log in or register to reply here.
Back
Top