Executive Summary

February 2025 showcased meaningful dispersion in the performance of quantitative investment strategies (QIS), with pronounced differences across asset classes and strategic approaches. Equity-based strategies encountered volatility-driven headwinds, while macro and trend-following strategies found opportunities in directional moves across rates and currencies. The wide performance dispersion underscores the importance of a diversified QIS allocation across strategies and asset classes.

 

Market Environment

  • Equities: U.S. equity markets have faced significant headwinds. On February 27, the S&P 500 index dropped 1.5%, influenced by a substantial selloff in Nvidia, which saw its stock decline by 8.5% following a lackluster earnings report. This downturn is further exacerbated by escalating trade tensions, as President Donald Trump announced the implementation of 25% tariffs on imports from Canada and Mexico starting March 4, along with an additional 10% duty on Chinese goods. These developments have heightened concerns about a potential economic slowdown. 

    Credit: The bond market has seen increased activity, with U.S. Treasury yields declining as investors seek safer assets amid economic uncertainty. The 10-year Treasury yield fell to 4.2% in Asian trading hours on February 28, reflecting heightened demand for government bonds.

    Rates: Central banks are adopting cautious stances in response to the evolving economic landscape. The Federal Reserve is anticipated to consider interest rate cuts later this year, influenced by recent soft economic data and escalating trade tensions. Similarly, the European Central Bank is expected to cut rates, facing divided opinions on future policies. 

    FX: The U.S. dollar has strengthened, influenced by safe-haven flows amid escalating trade tensions. The dollar index rose to 107.39. This appreciation has exerted pressure on commodities, including gold. 

 

Detailed Insights

Equity factor strategies, particularly value and size factors, delivered mixed results as sector rotation and elevated volatility contributed to challenging conditions. Momentum strategies, which had previously benefitted from sustained sector leadership, suffered reversals as market rotations accelerated.

Rates strategies showed strong dispersion between directional trend-following approaches, which benefited from the steepening yield curve, and carry strategies, which faced more mixed conditions as shorter-term rates declined. FX strategies saw strong differentiation between developed and emerging market exposures, with carry strategies in emerging markets facing particular headwinds due to heightened volatility and currency depreciation.

Commodities strategies posted varied results depending on specific exposures. Macro-oriented strategies with energy exposures benefited from oil price volatility, while those with broader commodity exposures faced more muted performance.

 

QIS Performance Highlights

Analysis of the QIS composites as of February 28, 2025, reveals the following Month-to-Date (MTD) performance:



 

Performance dispersion across composites remained high in February 2025. The top 5 performing composites for the month were:

  • Commodities Short Volatility with a MTD return of 0.69%.
  • FX Value with a MTD return of 1.17%.
  • Equities Event with a MTD return of 1.30%.
  • Equities Value with a MTD return of 1.95%.
  • Equities Low Volatility with a MTD return of 3.23%.

The bottom 5 performing composites for the month were:

  • Rates Short Volatility with a MTD return of -2.01%.
  • Equities Quality with a MTD return of -2.20%.
  • FX Intraday Momentum with a MTD return of -2.53%.
  • Equities Size with a MTD return of -2.97%.
  • Equities Growth with a MTD return of -3.76%.

The wide range between top and bottom performers highlights the importance of strategy selection in navigating the current environment, where trends across rates and FX offered clearer signals, while equity markets presented more challenging conditions.


Detailed Insights by Bucket

Carry (-0.40%): The Carry bucket posted a negative average return, with rates carry strategies facing particular headwinds from elevated volatility in shorter-dated maturities. FX carry strategies also struggled as higher volatility eroded carry returns, especially in emerging markets.

Factor (-0.22%): Factor strategies showed mixed performance. While value factors in equities outperformed, growth and size factors were sharply negative. 

Hedging (-0.45%): The Hedging bucket experienced negative returns, particularly within long volatility strategies in both equities and rates. As volatility climbed, hedging strategies were slow to monetize, reflecting the challenging balance between realized and implied volatility levels.

Liquidity (-0.31%): Liquidity strategies delivered a slightly negative average return, impacted by lower market depth and increased transaction costs in more volatile trading environments, particularly in credit and emerging markets.

Momentum (-1.04%): The Momentum bucket had the weakest average performance, driven by significant underperformance in FX Intraday Momentum and FX Momentum strategies. However, the Equities Momentum composite emerged as a top performer, mitigating some of the overall weakness.

Value (0.03%): The Value bucket was effectively flat for the month, supported by strong performance in equity value strategies, which offset weaker results in rates and FX value composites.

 

Performance by Asset Class

Commodities (-0.64%): The Commodities asset class delivered negative average returns, despite pockets of strength in short volatility strategies. Energy-related strategies were mixed, with price reversals offsetting gains from volatility carry strategies.

Credit (0.04%): Credit strategies were close to flat in February, as credit spreads widened modestly, but carry strategies were able to generate marginal positive returns from yield pickup.

Equities (-0.20%): The Equities asset class posted negative average returns, with significant dispersion across strategies. Low volatility and value strategies delivered strong gains, while growth, size, and quality strategies struggled amid shifting sector leadership and rising rate sensitivity.

FX (-0.19%): FX strategies ended the month slightly negative. Value strategies outperformed, but momentum and intraday strategies faced significant challenges from choppy market conditions and limited directional follow-through.

Rates (-0.97%): Rates was the worst-performing segment, with short volatility and momentum strategies both posting negative returns. Strategies tied to front-end rates suffered from increased volatility and repricing of rate expectations.

 

Conclusion

The February 2025 performance landscape for quantitative investment strategies highlights the importance of flexibility and diversification. Strategies capable of capturing macroeconomic trends and cross-asset momentum were well rewarded, while those dependent on equity factor persistence or mean-reversion faced more challenging headwinds.

Looking forward, key risks include ongoing monetary policy shifts, geopolitical uncertainties, and the potential for further volatility spikes across asset classes. Navigating these conditions will require a dynamic approach that balances opportunistic positioning with robust risk management.

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