Snapshot of Weekly Allocation, Performance & Post-mortem (SWAPP): 4 Nov-17

Snapshot of Weekly Allocation, Performance & Post-mortem (SWAPP): 4 Nov-17


Strategic allocations (44.2%):

  • Equity (22.1%):

  • DM equity longs: France CAC, Cyber-security, Japan Nikkei, US S&P 500, MSCI World

  • DM equity shorts: Long VIX

  • EM equity longs: China small-caps, MSCI EM, South Africa

  • EM equity shorts: Egypt, Russia, Brazil, India, Turkey

  • RV-FAANGs: Long AAPL/PYPL vs short NFLX/FB

  • FX (16.2%):

  • FX longs: GBP, NZD, CHF

  • FX shorts: AUD, EUR, ZAR, RUB, CAD, JPY

  • RV: Short AUD-NZD, short EUR-JPY, short EUR-CHF

  • Fixed Income (5.9%):

  • FI longs: US Treasuries

  • FI shorts: US Treasury 7-10yrs

Tactical allocations (32.8%):

  • Equity (3.7%):

  • Longs: Argentina, Pakistan, Qatar

  • Shorts: Mexico

  • FX (29.1%):

  • Shorts: KRW, MXN

  • Fixed Income (0%):

  • FI shorts: Euro HY credit

Other/cash (23%):

  • ‘Cash-Plus’ and SGD hedge (18.3%)

  • Vs EUR: Short CZK, HUF, PLN

  • Short SGD-CNH

  • Long USD-SGD

  • Cash (4.7%)

Performance summary

Week of 4 Nov-17: -1.5% (prior week +2.8%):

  • Positive contributions from:

  • Strategic equity longs: AAPL (reduced 2 Nov), France CAC (reduced 3 Nov), Japan Nikkei, PayPal (raised 31 Oct)

  • Strategic equity shorts: Brazil (realized/reduced 3 Nov), Russia, Facebook (realized/reduced 3 Nov), Netflix (realized/reduced 3 Nov), Turkey (raised 30 Oct)

  • Strategic FX: Short AUD-NZD (raised 31 Oct), long NZD (raised 3 Nov), short ZAR, short RUB

  • Tactical equity longs: Argentina (realized/reduced 2 Nov), Japan Nikkei (realized 1 Nov)

  • Tactical equity shorts: Mexico (realized/reduced 3 Nov)

  • Tactical FX: Long Gold (realized 30 Oct), short MXN (raised 30 Oct, realized 3 Nov)

  • Cash-Plus: Long EUR-HUF (raised 3 Nov), short SGD-CNH (realized 2 Nov, re-engaged 3 Nov)

  • Performance detractors:

  • Strategic equity shorts: Egypt (reduced 2 Nov), India, long VIX (raised 3 Nov)

  • Strategic FX: Long GBP, short CAD (reduced 3 Nov)

  • Strategic FI: Long US Treasuries

  • Tactical equity longs: Pakistan, Qatar

  • Tactical long GBP (realized 26 Oct)

  • Tactical short KRW (realized 1 Nov, re-engaged 3 Nov)

  • Tactical US Treasuries short (realized 3 Nov)

Post-mortem analysis

Missed opportunities:

  • Short TWTR: An outsized 21% rally Thu/Fri the previous week was bound to mean-revert ahead of the Russia ad-buying congressional inquiry. Twitter -7.4% on the week.

  • Long India Sensex: If undercapitalized, NPL-burdened banks have held back Indian growth prospects – a longstanding view – then the govt’s bank recap program (announced week before last) is a game-changer: Growth accretive and therefore positive for Indian equities (Sensex). We ought to have reduced (further) – or even flipped to positive – our long-held strategic short on India equities.

  • Short NOK and SEK: We had anticipated these Scandinavian currencies could underperform EUR post-ECB.

  • Short Thai equities: Now that 1yr mourning period has passed, downside risks/position re-adjustment should be expected.

  • Con-Cor model: Last week’s qualitative model-predictions were good – with 8 out of 20 best-/worst-performers anticipated. I could have added more allocations to equities (European and North Asian) and oil (if not via Brent contracts, then through producers).

Rank of Conviction-Correlation model output (Predicted) vs Actual week-on-week returns:

Learnings/what struck me:

  • Failed trade #1 – Long GBP: Whilst we rightly predicted the 7-2 BOE vote split (in it of itself, a hawkish signal upon which we based our bullish sterling bias for the week; ref: last weekend’s Week Ahead), we underestimated all the other factors – eg Carney’s dovish commentary and growth warning – that could have completely overwhelmed it. This bullish GBP view was the single largest detractor of performance this week, our first since at least Sep.

  • Failed trade #2 – Short UST duration: The dust has settled from the flurry of new info out of the US (Mueller probe, Fed Chair Powell, FOMC, House GOP tax bill, NFP/ISM – and company earnings). And UST yields are lower, curve is flatter, SPX slightly higher and USD unchanged. Price action seems to support anecdotal takeaways from this week’s events:

  • 1/ Fed policy reaction function of gradual tightening is intact (market did not ‘sell the fact’ on the Powell nomination; instead yields ground lower)

  • 2/ The long-awaited GOP House tax plan was underwhelming – or there are fresh doubts over its speedy passage and/or its ability to reflate the economy through fiscal stimulus.

  • 3/ Economic data was generally ‘a wash’ – neither bullish nor bearish. Post hurricanes rebound had been expected and/or the data is too distorted to glean any special insight over economic momentum.

  • … Intriguing then that Fed Funds Futures pricing has risen over the past week – with now 1 hike by Dec-2017 and 2 hikes by Jun-2018 priced in at 92% and 68% as of Friday, 3 Nov (a month ago these were 66% and 43% respectively). Moreover, Fed Fund Futures now price-in a 44% chance of at least 3 hikes to 1.75-2.00% by Dec-2018 (this was just 7% 1mth ago). This repricing occurred as 10yr UST yields fall (past ten days -12bp, this week -4bp to 2.33%) and while 2yr UST yields hover at 1.61%. Since the GFC, the UST curve has only been this flat 1-2X before – in 2012 during the Fed’s Operation Twist (deliberately intended to flatten the yield curve) and just before the 2016 US election gave way to expectations of ‘Trumpflation’. After a week that offered little evidence of neither immediate reflation (be it monetary or fiscal) nor wage growth (to interest Phillips Curve holdouts), it might now require something dramatic – perhaps structural – to significantly and persistently re-steepen the UST curve. We move from a strategic UST steepening bias to neutral, though we will continue to opportunistically short UST duration on a tactical basis.

  • Onward and upward: At -1.5%, this was the first ‘down week’ since at least September. It won't be our last. And we remind ourselves it could've turned out worse ...

#swapp #gbp #ust #twtr #india #nok #sek #thailand #concor #allocation

Featured Posts
Recent Posts
Search By Tags
No tags yet.
Follow Us
  • Twitter Metallic



Disclaimer: All communication on is provided for information purposes only, it is general in nature and does not take into account the objectives, financial situation or needs of any person. You should consider whether it is appropriate for you and seek independent advice before acting on it. is not acting in an advisory or fiduciary capacity and all communication is not an offer or recommendation to buy or sell any product or enter into any transaction. does not guarantee the completeness or accuracy of any information presented on this site. You should do your own independent research before making any decisions.