Societe Generale SA (ADR) (OTCMKTS:SCGLY) (EPA:GLE) in a recent report updated the Adaptive Sentiment Indicator for – H1 2013 performance. They show values of the adaptive indicators for the FX, commodities and equity asset classes, together with an update of the filtered performances for the different asset classes and Cross-asset filtering was a winner.

In FX, the cross-asset filtering approach has worked well so far in 2013

As we see from the chart below, passive FX carry trade strategies in different regions have not performed particularly well. The Cross-asset approach has helped to improve the 2013 performance, especially in the case of the G10 carry trade index.

Cross-asset Adaptive Sentiment

Cross-asset: Commodities is asset class where filtering approach has generated least value in 2013

Commodities have suffered an idiosyncratic crisis over the past few months, dragged down by weaker economic activity in China and lower expectations of future inflation. In other words, the drop in commodities observed so far in 2013 has somehow de-correlated from the risk-on/off pattern that the adaptive sentiment methodology aims at capturing in a smart  way. Consequently, commodities has been the asset class where the filtering approach has added the least value (especially for oil).

Adaptive Sentiment

In G10 Equities the adaptive sentiment methodology has added substantial value in 2013

As we see from the charts below, the adaptive sentiment methodology has added a lot of value so far  in  2013.  Not  only  have  most  filtered  strategies  outperformed  their  benchmark  in terms of absolute return, but also, because of the adjusted leverage in the risk-on/off areas, the volatility is reduced. If we take the example of the Nikkei (right-hand chart below), the G10 Equity index where, in terms of absolute return measure only, the filtering approach would have given the largest underperformance against its benchmark, one can see that filtering has in fact helped lock in a +20 percent return with much lower volatility than the passive, long-only strategy. Given that the filtering methodology’s main target is to optimise the entry point for hedging downside risk, the results above appear very appealing, even in the case of the Nikkei index.

Adaptive Sentiment

EM Equities: added value is substantial

Even more so than for G10 Equities, the added value brought by the filtering approach has been very evident for EM Equities. Not only has the filtered performance beaten the underlying long-only  benchmark  in  most  cases,  putting  year-to-date  returns  in  positive  territory,  but,  as discussed above for G10 Equities, it does so with less volatility.

As an example, Societe Generale SA (ADR) (OTCMKTS:SCGLY) (EPA:GLE) show the case of the Shanghai index, where Societe Generale see that filtering has helped so far in 2013 in mitigating the large drawdown (as experienced since early June), in fact profiting from the June drop by turning that into a modest profit, thanks to the -30 percent leverage in risk-averse periods.

Adaptive Sentiment