Risk On/Risk Off Shutting Off

by Attain Capital

There’s no doubt Commodities are receiving more attention this year than years past, and it’s because of breakouts in Natural Gas, Coffee, Cattle, Lean Hogs, Sugar, Wheat, and Corn. Now some of the these trends have reversed course, not allowing long term trend followers to fully capitalize – but we’ve seen markets moving on their own fundamentals, not based solely on the Fed Minutes or view on the economy (what became known as the risk on/risk off environment back in 2009/2010). There haven’t been too many Risk On/ Risk Off days to speak of in 2014, with just 1 ‘risk on’ day in both February and March. We define risk on as an average gain of over 1% for “risk” assets; risk off is an average loss of over -1% for “risk” assets. (Click here for a more detailed breakdown.) This is no doubt another sign that the ‘recovery’ is in full force, with markets dancing to their own beat instead of following equities higher or lower on big moves. But it also could be a sign of further compression in volatility and a pending volatility spike – no chart goes/stays down like this forever. Overall, Global Macro and Managed Futures strategies should be enjoying this move away from the risk on/risk off environment- as markets moving  in different directions/amounts at different times allows for the benefit of market/sector diversification such strategies rely on for risk control. Now if they could just stay in whatever direction their independently moving for a little bit longer – we could capture some nice trends.

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