Trading environment for systematic macro strategies was challenging on many fronts. Unprecedented policy uncertainty injected into the markets by tariffs announcements and sub-sequent retracements supplied short term trading strategies with volatility but stressed all other systematic strategies. A war conflict in Middle East later in the quarter turned out to be with a limited spill-over effect but was another test for systematic strategies nevertheless. Short term trading in April harvested outsized directional price moves in equities while trend followers were hit in the market sell-off. Fundamental quant macro strategies also showed weakness as carry and value signals generally work better in calm conditions or collect gains in post-breakout periods. Chaotic sentiment in global futures markets persisted into May and June and subsequently brought short-term trading strategies to a halt too. Multitude of intra-day reversals in the first half of May and during the month of June whipsawed both momentum and reversal technical signals. Long-term technical and fundamental strategies saw a modest recovery in June as short USD and long crude oil exposure accompanied by lower volatility benefited the portfolio managers. It is worth noting that, at the end of the second quarter, the CTA industry stood with the largest historical drawdown from peak since 2000.
Quant equity strategies, to everyone's surprise, withstood the April volatility. Momentum rally with contracting stock-specific risk where the most likely positive factors. Given previous stretch of good performance in single stock strategies attributed to momentum trend, it was natural to expect limited deleveraging or rotation in the space. Another factor supporting quant's performance was generally positive risk-on sentiment that followed the initial tariffs announcement shock as evidenced by sell-off in Low Beta factor. US region and technical signals remained the main driver of returns. Second half of June, however, brought a significant shift from that trend. A brief momentum reversal mid-month on the back of the Iran/Israel conflict eroded quant performance. Statistical arbitrage strategies with exposure to reversal factor continued to struggle into the month's end and exhibited initial signs of industry deleveraging.