1. SGMT Capital Research Inc.
SYSTEMATIC GLOBAL MARKETS TREND
JULY, 2016
Investor Letter
The SGMT trading system had a gross return of 5.83% for Level II in the month of July, 2016
Source of Returns by Currency (July, 2016):
2016 Gross Returns by Month:
Level II Month Ccy Change SGMT Gross Return
Australian Dollar (AUD) 2.15% 1.60%
Canadian Dollar (CAD) -0.78% -0.19%
Swiss Franc (CHF) 0.88% 1.37%
Euro (EUR) 0.87% 0.47%
Great Britain Pound (GDB) -0.40% 0.26%
Japanese Yen (JPY) 1.20% 2.42%
Total Level II 5.83%
Jan Feb Mar Apr May Jun Jul YTD
0.07% 12.80% 5.39% 5.38% -6.22% -1.54% 5.83% 22.50%
2. Brexit in late June continued to ripple through July. However, with the victory of Abe’s party parliament
election in Japan, global stocks rose and the Yen weakened quickly on expectations of more BOJ stimulus
in Japan. It was followed by a global equity market rally into most of the month of July, despite global
tensions and disorders from various sources and the IMF’s lowered global growth expectations. In the
currency market, the dollar rallied on the expectations of a FED rate hike prospect as well as lesser
concerns of Brexit on the US economy from an emotional perspective regardless if these presumptions
could really drive fundamentals. From a commodity and bond market perspective Brexit risk requires more
time to evolve; otherwise, the economic trend (or more precisely, no-trend) picture has not fundamentally
changed. Clearly, most global markets were in a sideways risk and trend reassessment period while other
markets jumped forward creating certain risk informational dislocations among the markets. In the last
week of July and before the BOJ meeting announcement, Japanese Prime Minister Abe announced ¥28
trillion stimulus plus ¥13 trillion fiscal measures to pop up Japan’s economy. It temporarily pushed Yen
weaker. Finally, FED July meeting took no rate action as expected by markets but FED statement
indicated “diminished risks to US economy” to open the door for possible later in the year rate hikes while
a day later Atlantic FED Q2 GDP model predicated a 0.5% drop to 1.8%. The currency market had
jumped ahead of the FED meeting to push the dollar higher but it did not stay there while bond markets
reacted to the FED statement with lower yields, a clear sign of diverged views of different markets. In the
last day of July, market anxieties over BOJ decision were built up to a similar level of that of Brexit and
BOJ delivered a ¥6 trillion ETF purchases short of markets expectations and the BOJ’s own credibility to
predict Japan’s CPI returning to 1.7% in 2017. Overall, July currency market action was emotional jittering
that produced almost daily dollar up and down moves from speculation of the FED tightening, pushing
the dollar higher. Then on the last day of July, the US Q2 GDP report disappointed, it seemed the FED
and currency market proved to be more on the wrong side of US economic assessment than other
markets.
The implementation of the non-market event risk management actions taken by SGMT one day prior to
Brexit referendum in June were gradually lifted in first three weeks of July. The adaptation of gradual1
normalization to SGMT model was due to the consideration of a prolonged period of Brexit political risk
assessments rather than immediately material economic impacts. The gradual normalization of the SGMT
special risk management actions in GBP and JPY positions had reduced some degree of portfolio
volatilities in July and contributed about 0.5% pickup relative to SGMT full model. After the Brexit shock,
SGMT model had generated information that generally pointed to a richer dollar against some currencies
while a vulnerability of risk shocks for others. SGMT generally positioned itself in some dollar shorts and
some restricted dollar exposures in others. As discussed above as well as in our June Investor Letter, in
July, there were clearly some pockets of informational dislocations among the global markets as seen by
SGMT model and the currency market. The patience of the SGMT strategy reaped the rewards from
focusing on the fundamental identifications of the overall market information.
In looking forward, the patches of information voids or dislocations may continue to show up in the
markets after Brexit but will certainly diminish their impact as cooler risk assessments of global markets
continue. On the other hand, both the global economic status and the markets lack clear trends emerging
from recent developments. Therefore, it may take longer for a trend strategy such as SGMT’s to emerge as
the winner. Again SGMT will follow the markets as they further develop in coming months.
SGMT is a systematic FX trading strategy, so it might be useful to compare our returns to our peers and
similar competitors. The BTOP index is an index of other foreign exchange managers as provided by
BarclayHedge.com. The following table shows the SGMT Capital vertical comparison statistics to the
BTOP index components sourced from barclayhedge.com
See SGMT June Investor Letter1
