October 2017 ARION Wrap-up

The volatility in the markets remains low, and so it continued during the month of October. However, luckily for Arion, here and there it seems that the markets are less available for the extreme complacency stance that we have been seeing in all of 2017. Odysseia Capital has been calling for this pick-up in volatility as it’s be hard to accommodate the view that the markets would now be unresponsive to every and any event, in what it would seem to the less attentive, a relentless march of asset appreciation. 

Despite what it seems now to be a healthy pick-up in global economy, it’s also true that the markets tick by what happens in the main economic blocks. We believe the next months, as Brexit negotiations will either default or succeed, as the USA administration will prove that it can deliver (or not) on promises and the ECB starts to tighten the monetary policy, will show a different picture in the volatility.

Specifically, this October, the October 26th ECB meeting brought extra localized volatility as Mário Draghi presented a more dovish approach as compared to several other previous public interventions. The effect on volatility (as represented by the VIX index) is clearly seen in the chart below, where it can be easily verified the volatility spike on the 26th of October, the date of the ECB monetary policy meeting and press conference.

Image source: CBOE (www.cboe.com)

The volatility spike on the 26th of October enabled some very interesting trades in the Arion and the strategy was able to end the month with a return of 2.4%, above the long term monthly target,  locking in the second month in a row of not only positive returns but also above the aimed 2%/month. It remains to be seen if the markets will allow Arion to return to stable stream of positive returns as seen before.

We take the opportunity to inform that the NZDUSD strategy will be removed from the portfolio. It failed to prove profitable after 1.5 years and the negative contribution of more -1% to the October return was the last drop. But worry not, a totally new NZD strategy has already been developed and it’s at this time under test.