longandshort Global Risk Strategy (Journal)

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longandshort

Hello Traders:
Thanks for being here. I'm longandshort, a "portfolio manager" in seed/incubator phase. The goal of this journal is to provide education, get feedback from other traders, and to hold myself accountable.

Note: due to confidentiality and IP of my strategy, I will only be discussing one live trade per day. I will be on FundSeeder and will update this post to reflect that information.

Publishing schedule
Daily: PnL, trade review, and market recap
Weekly: PnL, hit ratio

Strategy Overview
The Global Risk strategy aims to generate market-leading returns by investing in near-term catalysts. The specifics is proprietary, but the general investment process is as follows:

Catalysts -> due diligence -> trade

Portfolio Information
  • Average duration (holding time): 1-4 weeks
  • Positions: 15-25 with a long bias (60-80% long, 20-40% short)
  • Asset class: primarily equities and equity derivatives
  • Gross exposure: 100% NLV at end of day, little to no overnight margin balance
  • Risk limits: 2.5% open size, 8.5% max cost
  • Prime broker: IBKR
  • Inception date: 3/15*/2021
Eventually, I plan to move outside of just equities and incorporate more macro (rates, fx, volatility, commodities).

*Tentative -- waiting for account to finish opening
 
3/11/2021 - Thoughts on the Macro Regime, Inflation, and Where We Go From Here

Key facts:
  • The outlook for US gdp is improving -- consensus forecast for US gdp in 2021 has moved up from 3.9% to 5.5% (source: Bloomberg), this should support stocks (especially cyclical sectors) as EPS forecasts will need to be revised higher
  • Inflation regime is still mild -- core CPI came in for February at 1.30%, which is quite far from the 1.7% print in August of last year; note: yoy numbers will look higher from April-July because of the low base
  • Interest rates are still pinned on the low end, while the 10yr has rallied from around 1% on 12/31 to ~1.5% currently -- I expect rates to move up to 1.75 at current rates of inflation expectations
The macro regime seems to call for an early-cycle playbook, which has done well since the market bottom last year. Moving forward:
  • Broadening of the market makes sense, with cyclical stocks catching up to tech names (this makes economic sense, as the value of high growth stocks is impacted more from changes in interest rates)
  • The dollar strength should continue as US rates outperform on a global basis -- this will also impact the returns of emerging market countries as money flows to the US
  • Commodities have room to rally: industrial metals should benefit from rising demand from domestic investment (gov infra, biz inventory, consumer demand), oil prices can be supported for now, gold is probably a net loser from the twins of mild inflation and higher yields
  • Yield curve should steepen further, I'm looking at 3-5-7
With that being said, valuation concerns esp. in the tech sector is worrisome. However, I would not worry too much unless we see yields starting to spike up again. Overnight bid (Japan) has been pretty strong at these levels, so I'm not very confident in heightened volatility in rates. At the beginning of the year, rates were definitely underpricing growth/inflation, and now seem more in-line.
 
10Yr has jumped again:
 

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Okay, results of the first week: up 1.02% (of total portfolios) on 5 trades. When long/short I calculate my pnl on a capital-weighted basis.
  1. MXL/XSD: pairs trade here as a test run; lost 5.4% on the long and gained 2.5% on the short for a capital-weighted pnl of -2.3%
  2. LEVI/IYK: first actual trade, bet on beat & raise by LEVI and continued weakness in tech-heavy consumer discretionary; made 6.4% on the long and 0.8% on the short for a capital-weighted pnl of 3.1%
  3. PAYX: bet on liquidity; ended up flat at 0% long
  4. GBX: bet on liquidity; made 0.2% long
  5. VERY: short bet on liquidity; made 8.3% short
PS: I'm linking to collective2 -- anyone have experience with that?
 
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