Hedge funds that use powerful computers to run their portfolios are making huge profits in this year’s market turmoil, marking a resurgence for a sector trying to recover from a long stretch of weak performance.
Trend-following hedge funds, which use mathematical models to try to predict market movements, had struggled for years as central bank bond-buying suppressed much of the volatility on which they thrive.
But the $337bn industry is now making its biggest gains since the 2008 financial crisis, according to data provider HFR.
These quantitative funds have profited in particular from bets against government bonds, which have been shaken by expectations that the Federal Reserve will keep raising interest rates aggressively to fight high inflation. They have also capitalised on a surge in energy and commodity prices, fuelled by supply chain bottlenecks and Russia’s invasion of Ukraine.
“Now is one of those 2008 moments where everyone [in trend-following] is doing well again. The trends are clearer,” said Leda Braga, founder of Systematica Investments and former head of systematic trading at BlueCrest.
Thanks for reading FirstFT Americas. Here’s the rest of the day’s news — Gordon
Five more stories in the news
1. Nineteen children killed in Texas school shooting US president Joe Biden made an emotional plea for the country to “stand up to the gun lobby” after a gunman killed at least 19 children and two adults in the deadliest school shooting in America for a decade. Law enforcement officers shot dead 18-year-old Salvador Ramos, who was suspected of carrying out the mass shooting at the Robb Elementary School in Uvalde, Texas.
2. Donald Trump’s 2020 nemeses clinch big wins in Georgia Brian Kemp will seek a second term as Georgia governor after securing a convincing win over his Donald Trump-backed rival David Perdue. Meanwhile, Georgia’s secretary of state Brad Raffensperger, whom the former president blamed for certifying Joe Biden’s 2020 election victory in the state, will remain the Republican candidate after defeating his rival.
Go deeper: The more Trump’s candidates lose, the less fear the former president will instil in the Republican party, writes Edward Luce.
3. UK government clears £4.25bn Chelsea FC sale The UK government has finally signed off the £4.25bn sale of Chelsea Football Club to American financier Todd Boehly. The deal was held up after Boris Johnson’s administration insisted on guarantees that Russian owner Roman Abramovich would not benefit from the sale.
4. North Korea fires suspected ballistic missile North Korea launched a suspected intercontinental ballistic missile and two other projectiles earlier today, according to the South Korean government, a day after Joe Biden concluded his first tour of the region as US president. The show of force by Pyongyang came less than a day after Chinese and Russian nuclear-capable bombers flew over the Sea of Japan in an exercise the government in Tokyo called “unacceptable”.
5. Pfizer warns of ‘constant waves’ of Covid-19 Growing complacency about Covid-19 and politicisation of the pandemic response will cost lives as the world is hit by new waves of the virus in coming months, Pfizer’s chief executive has warned. “What worries me is the complacency,” Albert Bourla told the FT.
The day ahead
Monetary policy The Federal Open Market Committee releases minutes from its May 3-4 meeting, where it raised the benchmark policy rate by 0.5 percentage points. The minutes should provide insight into the pace at which the Fed plans to raise rates to “neutral” territory in an effort to stem inflation. New Zealand’s central bank became the latest to raise interest rates earlier today.
Economic data The US Census Bureau will release data on new orders of long-lasting goods such as refrigerators and aircraft, a category that serves as a proxy for business investment. Economists surveyed by Refinitiv expect a monthly increase of 0.6 per cent for April. The European Central Bank publishes its twice-yearly stability review and the OECD publishes its eurozone economic outlook.
Company earnings Retailer Dick’s Sporting Goods is expected to report profits of $2.58 a share on $2.6bn of revenues, according to analysts polled by Refinitiv. Computer chip vendor Nvidia is expected to post profits of $1.29 a share on $8.12bn in revenues when it reports earnings after the market closes. Software group Snowflake also reports earnings.
Market outlook US equities are expected to open in positive territory when trading begins after a profit warning from social media group Snap and a dramatic fall in new homes sales spooked investors yesterday. Shares in Europe were higher as investors waited for the release of the Federal Reserve minutes.
Annual meetings Executive pay will be uppermost in investors’ minds at Amazon’s annual meeting, the first to be presided over by chief executive Andy Jassy. Oil majors ExxonMobil and Chevron also hold their annual meetings as well as BlackRock, the world’s largest asset manager.
World Economic Forum ECB president Christine Lagarde, the Irish, Dutch and Slovakian prime ministers and the president of the European parliament join a Davos forum on EU unity in response to Russia’s invasion of Ukraine.
Partying in Downing Street The long-awaited report into the “partygate” scandal that has rocked the UK government for months is released today. The report is expected to be highly critical of Prime Minister Boris Johnson after fresh allegations emerged this week of a culture of routine drinks events at Downing Street during the pandemic. Our Inside Politics newsletter has all the background.
Remembering George Floyd Today marks the two-year anniversary of the killing of George Floyd. FT reporter Taylor Nicole Rogers returned to the otherwise unremarkable street corner in Minneapolis where Floyd was murdered to find a city still grappling with the legacy of the events of May 25 2020.
Yesterday we incorrectly said was the two-year anniversary of George Floyd’s murder. We apologise for the error.
What else we’re reading
The Fed must act now to ward off the threat of stagflation Whether there is going to be a recession in leading economies has arisen at Davos. This is the wrong question, Martin Wolf argues, at least for the US. The right one is whether an era of higher inflation and weak growth, similar to the stagflation of the 1970s, looms.
Go deeper: The second part of our series on the US labour market looks at the most severe imbalance between labour demand and supply since the second world war.
Is the ‘subscription economy’ going to feel the Netflix effect? The rash of businesses offering subscriptions took off in about 2011, led by TV and music streaming services and quickly followed by beauty products, clothes, organic coffee, craft beer, pet food and more. The “subscription economy” is heading into its first serious downturn, Helen Thomas writes.
Sombre mood descends on Davos Russia’s invasion of Ukraine, surging inflation, Chinese lockdowns and growing uncertainty about globalisation have conspired to chill the business mood at the World Economic Forum meeting in Davos. “There are three R words right now: It’s Russia, it’s recession and it’s [interest] rates,” said Citigroup chief Jane Fraser.
The rise of the Middle East and hope for sustainability One region where executives are more optimistic is in the Middle East. Luxury companies are reporting a flurry of spending in the region thanks to rising oil prices, strong economic growth and a return to shopping locally, executives told the recent FT Business of Luxury Summit.
Asset managers divided by HSBC executive’s climate criticism A provocative speech on climate change by HSBC executive Stuart Kirk has split the asset management industry, with many disagreeing with his tone but others welcoming his willingness to prompt debate and highlight inconsistencies in environmental, social and governance investing.
Opinion: Stuart Kirk has done the world of green finance a tremendous service, writes Pilita Clark.
Cinema
The Cannes Film Festival celebrates its 75th year with Volodymyr Zelensky, Tom Cruise and Sharon Stone all putting in appearances. The FT brings you the highlights.
Source: Economy - ft.com
