We know… we know… May is almost an afterthought at this point a full week and a half of trading later, but we can’t help but look back with some sense of interest at how markets diverged last month as compared with May one year ago.  May of 2012 saw the S&P fall, and all risk-on assets (commodities and so called commodity currencies) fall right along with it (Crude was down a whopping -18%).

But fast forward to May 2013 and the S&P is sort of an afterthought for those same markets. With the S&P up moderately at +3%, Crude was essentially unchanged, the Aussie Dollar was down big, and Soybeans were up big.

 

What’s the point?  Well, for most people – nothing. Who cares what the Aussie Dollar is doing while Soybeans are doing something else? But for managed futures programs which have market diversification as a big part of their risk controls, these sorts of divergent moves are exactly the kind of thing they want to see. Last May (2012), whether you were in Crude Oil, the Aussie Dollar, or Soybeans – it was all one big trade on the S&P. This May, they are each their own trades, meaning trend following programs can get back to having multiple return streams, and more importantly, different risk streams.

A recent piece  in the Wall Street Journal  sums up this sentiment rather well (although we’ve been talking about for a few months now), saying that the risk on/risk off trade is gone.

For managed futures – it’s good riddance.