Weekly Recap: How Mobile disrupted Airfreight

world.2015-05-15.2015-05-22

Equities

Major
DAX(DEU) +3.21%
CAC(FRA) +2.99%
UKX(GBR) +1.02%
NKY(JPN) +2.69%
SPX(USA) +0.34%
MINTs
JCI(IDN) +1.68%
INMEX(MEX) -0.92%
NGSEINDX(NGA) -0.49%
XU030(TUR) -2.35%
BRICS
IBOV(BRA) -5.07%
SHCOMP(CHN) +8.10%
NIFTY(IND) +2.38%
INDEXCF(RUS) -1.53%
TOP40(ZAF) -0.10%

Commodities

Energy
Ethanol -6.26%
WTI Crude Oil +0.69%
Heating Oil -2.32%
Natural Gas -4.60%
RBOB Gasoline +0.78%
Brent Crude Oil -1.96%
Metals
Gold 100oz -0.95%
Palladium -1.45%
Platinum -1.95%
Copper -4.41%
Silver 5000oz -2.29%

Currencies

USDEUR:+3.96% USDJPY:+1.85%

MINTs
USDIDR(IDN) +0.57%
USDMXN(MEX) +1.67%
USDNGN(NGA) +0.76%
USDTRY(TUR) +0.86%
BRICS
USDBRL(BRA) +3.75%
USDCNY(CHN) -0.15%
USDINR(IND) +0.01%
USDRUB(RUS) +1.27%
USDZAR(ZAF) +1.00%
Agricultural
Feeder Cattle +0.59%
Orange Juice +5.82%
Soybean Meal +0.30%
Soybeans -2.83%
Sugar #11 -4.12%
Wheat +0.98%
White Sugar -4.33%
Cattle -0.21%
Cocoa +2.18%
Coffee (Arabica) -7.87%
Coffee (Robusta) -3.06%
Corn -1.37%
Cotton -5.07%
Lumber +14.50%
Lean Hogs +0.66%

Credit Indices

Index Change
Markit CDX EM +0.21%
Markit CDX NA HY -0.07%
Markit CDX NA IG +0.44%
Markit iTraxx Asia ex-Japan IG -3.17%
Markit iTraxx Australia -0.76%
Markit iTraxx Europe -0.88%
Markit iTraxx Europe Crossover -6.29%
Markit iTraxx Japan -1.17%
Markit iTraxx SovX Western Europe -0.04%
Markit LCDX (Loan CDS) +0.00%
Markit MCDX (Municipal CDS) +1.77%
A moment of silence to whoever shorted the market thinking the NIFTY will go to 7600. May your capital rest in peace.

Nifty Heatmap

CNX NIFTY.2015-05-15.2015-05-22

Index Returns

For a deeper dive into indices, check out our weekly Index Update.
index performance.2015-05-15.2015-05-22

Sector Performance

sector performance.2015-05-15.2015-05-22

Advance Decline

advance.decline.line2.2015-05-15.2015-05-22

Market Cap Decile Performance

Decile Mkt. Cap. Adv/Decl
1 (micro) -1.51% 66/62
2 -0.05% 69/59
3 +2.14% 76/51
4 +2.33% 73/55
5 +2.22% 72/55
6 +1.23% 69/59
7 +2.07% 62/66
8 +2.42% 68/59
9 +1.44% 68/60
10 (mega) +2.14% 61/67
Ob-La-Di, Ob-La-Da…

Top Winners and Losers

ADANIENT +7.59%
HCLTECH +7.69%
TECHM +7.88%
TATASTEEL -6.26%
BHARATFORG -3.69%
OIL -3.58%
Tech broke through disappointing results while investors were served a reminder of the problems plaguing old-economy stocks…

ETF Performance

CPSEETF +1.97%
NIFTYBEES +1.73%
JUNIORBEES +1.66%
INFRABEES +1.05%
BANKBEES +0.98%
PSUBNKBEES -0.66%
GOLDBEES -0.91%
Look at the divergence between BANKBEES and PSUBNKBEES…

Yield Curve

yield Curve.2015-05-15.2015-05-22

Bond Indices

Sub Index Change in YTM Total Return(%)
GSEC TB -0.18 +0.20%
GSEC SUB 1-3 -0.01 +0.33%
GSEC SUB 3-8 -0.04 +0.42%
GSEC SUB 8 -0.04 +0.56%
Lower inflation + tepid economy = rate cut?

Investment Theme Performance

Equity Mutual Funds

Bond Mutual Funds

Thought for the weekend

From the mid-1980’s when PC’s and other hi-tech products first started being assembled in Asia, in places like Taiwan, Hong Kong, Singapore, Thailand and Malaysia, through 2010, after China had achieved the dominant manufacturing position it holds, the airfreight markets became increasingly reliant on the market for getting hi-tech goods built and assembled in Asia to North America and also to Europe.

The iPads and other Android-based and Windows-devices both usurped and combined many of the functions previously reserved for the PC platform or other dedicated electronic devices. Emerging from the Great Recession, these increasingly smaller, more powerful, alternative devices with their myriads of “apps” began to offer multiple capabilities on one platform that delivered capabilities which had previously taken multiple devices to deliver. This factor also significantly changed the dynamics of the airfreight markets.

Source: Avondale Asset Management

Opening Bell 22.05.2015

Your world at 9am

world.2015-05-22

Equities

Major
DAX(DEU) +0.14%
CAC(FRA) +0.26%
UKX(GBR) +0.09%
NKY(JPN) -0.15%
SPX(USA) +0.23%
MINTs
JCI(IDN) -0.19%
INMEX(MEX) -0.41%
NGSEINDX(NGA) -0.21%
XU030(TUR) -1.55%
BRICS
IBOV(BRA) +0.38%
SHCOMP(CHN) +1.66%
NIFTY(IND) -0.03%
INDEXCF(RUS) +1.37%
TOP40(ZAF) -0.16%

Commodities

Energy
Heating Oil -0.29%
Natural Gas +0.24%
WTI Crude Oil -0.30%
Brent Crude Oil -0.30%
Ethanol +0.32%
RBOB Gasoline -0.04%
Metals
Palladium +0.54%
Platinum +0.15%
Silver 5000oz +0.00%
Gold 100oz +0.00%
Copper +0.00%

Currencies

USDEUR:-0.20% USDJPY:-0.17%

MINTs
USDIDR(IDN) +0.10%
USDMXN(MEX) -0.08%
USDNGN(NGA) -1.03%
USDTRY(TUR) -0.06%
BRICS
USDBRL(BRA) +1.19%
USDCNY(CHN) -0.01%
USDINR(IND) -0.29%
USDRUB(RUS) -0.23%
USDZAR(ZAF) -0.03%
Agricultural
Lean Hogs +0.00%
Lumber -0.26%
Soybean Meal -0.03%
Sugar #11 -0.64%
Corn -0.14%
Cotton +0.13%
Feeder Cattle +0.00%
Soybeans -0.27%
Cattle +0.00%
Cocoa +0.00%
Coffee (Arabica) -5.18%
Coffee (Robusta) +0.00%
Orange Juice +2.13%
Wheat +0.86%
White Sugar +0.00%

Credit Indices

Index Change
Markit CDX EM +0.23%
Markit CDX NA HY -0.06%
Markit CDX NA IG +0.52%
Markit iTraxx Asia ex-Japan IG -0.37%
Markit iTraxx Australia +0.29%
Markit iTraxx Europe +0.03%
Markit iTraxx Europe Crossover +0.00%
Markit iTraxx Japan -0.52%
Markit iTraxx SovX Western Europe -0.17%
Markit LCDX (Loan CDS) +0.00%
Markit MCDX (Municipal CDS) -0.22%
The S&P 500 closed at a record high yesterday. Here’s what a trader had to say: “It doesn’t matter if we’re at an all-time high if there are just two guys trading a stock back and forth.” (Reuters)

Must reads

India to UN: It is our prerogative if we want to kill our forests and pollute our air. (ET)

Investments made by investors in NRIs, OCIs and PIOs from their rupee account (non-repatriation basis) in India will be treated as domestic investment. (DNA, #regulation)

FDI in e-commerce: nobody thought to ask the consumer. (LiveMint)

India’s microfinance industry increased its total loan portfolio 61% over the past financial year to a record high of $6bn — a remarkable turnround for an industry pushed to the brink of collapse five years ago. (FT) SKSMICRO 456.95 -2.70 (-0.59%)

Good luck and have a nice weekend!

Practical Momentum – Conclusion

Recap

We began the exploration of a practical way to execute momentum using derivatives. We found that:

  1. A lookback period of one year works best (Part I)
  2. Because of survivorship bias, long-short underperforms long-only (Part II)
  3. Hedging with single-name put options doesn’t work(Part III)
  4. Larger long-only portfolios have smaller drawdowns and better performance than smaller long-only portfolios (Part III)

Conclusion

The way things stand, Momentum is best executed using a broad basket of stocks. There is no mechanical way to maintain a momentum driven derivative portfolio. You can explore long-only equity momentum here.

Opening Bell 21.05.2015

Your world at 9am

world.2015-05-21

Equities

Major
DAX(DEU) -0.04%
CAC(FRA) +0.31%
UKX(GBR) +0.17%
NKY(JPN) +0.46%
SPX(USA) -0.09%
MINTs
JCI(IDN) -0.09%
INMEX(MEX) -0.15%
NGSEINDX(NGA) -0.50%
XU030(TUR) -1.08%
BRICS
IBOV(BRA) -1.08%
SHCOMP(CHN) +0.87%
NIFTY(IND) +0.69%
INDEXCF(RUS) -1.36%
TOP40(ZAF) -0.31%

Commodities

Energy
WTI Crude Oil +0.17%
Ethanol +0.25%
RBOB Gasoline -0.30%
Natural Gas +0.62%
Brent Crude Oil +0.28%
Heating Oil +0.14%
Metals
Copper +0.56%
Silver 5000oz +0.00%
Gold 100oz +0.00%
Palladium +0.09%
Platinum +0.04%

Currencies

USDEUR:-0.24% USDJPY:-0.13%

MINTs
USDIDR(IDN) -0.17%
USDMXN(MEX) -0.08%
USDNGN(NGA) +0.00%
USDTRY(TUR) -0.03%
BRICS
USDBRL(BRA) -1.17%
USDCNY(CHN) -0.02%
USDINR(IND) +0.24%
USDRUB(RUS) +0.06%
USDZAR(ZAF) +0.03%
Agricultural
Coffee (Arabica) -2.68%
Coffee (Robusta) +0.00%
Cotton +0.05%
Lumber +0.59%
Orange Juice +1.76%
Wheat +0.10%
White Sugar +0.00%
Cocoa +0.00%
Corn +0.63%
Feeder Cattle +0.00%
Cattle +0.00%
Lean Hogs +0.00%
Soybean Meal +0.26%
Soybeans +0.24%
Sugar #11 -1.87%

Credit Indices

Index Change
Markit CDX EM -0.19%
Markit CDX NA HY -0.03%
Markit CDX NA IG +0.36%
Markit iTraxx Asia ex-Japan IG -0.35%
Markit iTraxx Australia +0.25%
Markit iTraxx Europe -1.05%
Markit iTraxx Europe Crossover -5.56%
Markit iTraxx Japan -0.22%
Markit iTraxx SovX Western Europe -0.03%
Markit LCDX (Loan CDS) +0.00%
Markit MCDX (Municipal CDS) +1.26%
Is Thursday correction day?

Must reads

We now have a committee to look into the MAT issue. Wonderful. (BT)

Your take-home salary is set to see a sharp cut with a labour ministry proposal to include house rent, gratuity, traveling and other allowances as part of the “contributing wages” on which provident fund would be deducted. (IE)

Airtel had one look at what happened to American telcos once they became a “dumb pipe” and decided that Zero is worth the (small) backlash. (LiveMint) BHARTIARTL 393.15 -3.30 (-0.83%)

Good luck!

Practical Momentum Part III – Hedging

Introduction

In Part II of our Practical Momentum series, we saw how adding a volatility adjustment significantly improved portfolio returns. However, we were left with a nagging observation that long-only returns were much higher than long-short returns. The problem with a long-only futures portfolio is that draw-downs can wipe you out. But what if we hedged the portfolio?

You can hedge a portfolio in two ways: (a) buy individual put options, and (b) calculate the beta of the portfolio and short an appropriate multiple of NIFTY futures. The problem with option (b) is that it will not protect you against idiosyncratic risk. For example, say you are long a pharma stock and the USFDA issues an import alert, the stock will tank irrespective of the NIFTY. So for the purposes of this simulation, we will try option (a)

Hedged Long-Only Momentum

With 5 long-futures hedged with long put-options below the purchase price:

black line shows long-only; red shows hedged long-only

hedged.momentum

A portfolio hedged with single-name put options performs poorly:

  • There is always a δ between the option payout and the underlying
  • θ-decay eats away more of the option value than the protection it offers

Another way to make draw-downs shallower is to diversify. When we increased the number of stocks in our long-only equity momentum portfolio from 10 to 20, it reduced portfolio volatility and boosted returns. Here’s how a 10-count long-only momentum portfolio compares with the 5 from above:

black line shows a 5-item long-only portfolio returns; red shows 10
five10.momentum

Conclusion

The problem with leveraged momentum is that losses can wipe you out. Hedging it with single-name options doesn’t work. Are we stuck with unlevered momentum? We will explore this in the next post. Stay tuned!