So who benefited from the so-called Trump trade ?

Not many, says JP Morgan after a survey of its clients. Most investors were not quick enough to respond to the surprising U.S. presidential race in which Republican Donald Trump rode to victory, and many others may have been less than convinced about the consequences of the controversial billionaire’s ascent to the White House.

Hedge Funds Established Winning “Trump Trade” Before …

Q3 2016 Hedge Fund Letters

Trump Trade

“The majority of clients have been either too slow or too reluctant to jump into the Trump trade,” the bank said. The responses stemmed “from a general belief that markets are getting ahead of themselves and from a general dismissal of the idea that Trump represents a game-changer for markets.”

Currrency hedge funds made gains despite the poor industry performance

Currency hedge funds made the most gains, 2.4%, since the Nov. 8 election, implying an unusually high 0.8 beta to the U.S. dollar index. But, overall, hedge funds were disappointing, and no investor type beat either the S&P500’s 3.1% gain or the DXY’s 3.3% rise.

Within hedge funds, currency and equity long/short funds were the notable gainers while macro hedge funds, CTAs and risk parity funds suffered declines, it added. Risk parity funds were the worst, losing 2.0% since the election followed, as equity gains were not enough to offset the sharp selloff in bonds, which typically have exposed by four times as much as equities. Discretionary macro lost 1% (both returns till Nov 21). CTAs were flat.

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Specifically, the analysts note:

Risk Parity funds were hurt as their equity gains were not enough to offset the sharp selloff in bonds on which Risk Parity funds are typically exposed by four times as much as equities.

And:

Rolling 21-day equity betas based on a univariate regression of the daily returns of the HFRX Systematic Diversified CTA Index and our Risk Parity fund return index to the daily returns of the S&P 500.Our risk parity fund index and the HFRX Systematic Diversified CTA Index forms just a fraction of the total universe which is around $120bn and $150bn respectively, hopefully a good representative of the entire universe.

risk-parity-hit

Money managers benefit from embracing the Trump trade

Overall, real money managers did a better job than hedge funds in embracing the Trump trade and consequently benefited more from the big market moves since the election, the bank said in its weekly Flows and Liquidity report Nov. 25.

Trump Trade

The balanced mutual funds returned 0.8% in the period, compared to a return of 1% for a 60% S&P500/40% US Agg portfolio, a typical benchmark for the funds. Among the 100 biggest equity funds, 65% exceeded the 3.4% return for the S&P500 index, while 74% of the 100 biggest active bond funds exceeded the -2.5% return for the Barclays US Agg bond index.

Trump Trade

The other interesting finding in JP Morgan’s survey was a sharp uptick in yen hedges after the 10% rise in Japanese equities since the U.S. presidential election. Foreign investors may have added to $150 billion in currency hedges in order to realign with the increased value of their Japanese equity holdings, and a lower yen.

“This yen flow could be very big as overseas investors hold $1.5tr of Japanese equities, 30% of the total stock,” JP Morgan said.

Trump Trade

Emerging markets continued to see outflows for a second week since the U.S. election. Bond and equity ETFs have now suffered declines of 9.1% and 1.2% of assets under management over the past two weeks. Overall, emerging markets bond ETFs have given up 18% of the inflows in nearly a year, while the corresponding number for equity ETFs is over 13%.

Trump Trade

JP Morgan said both EM bond and equity ETFs still look vulnerable. But in the longer term, the equity ETFs look “less vulnerable,” given their declines between 2010 and 2014.