August was constructive for QIS, but it was not a return to an uncomplicated risk-on regime.
Equities recovered from July’s dislocation, AI-linked exposures regained momentum and credit spreads remained exceptionally firm. At the same time, the macro backdrop became less comfortable: Jackson Hole shifted rate expectations in a more hawkish direction, European and Japanese yields rose, precious metals rallied sharply and the yen weakened again after the previous month’s intervention.
That is a specific environment. Carry performs when risks remain contained rather than disappear; relationship-based and convexity strategies struggle when large moves occur across different markets without developing into one coherent volatility regime. August delivered both halves.
Average composite return: +0.25%. Median: +0.24%. Twenty-five of 40 composites finished positive.
Dispersion narrowed from July but remained meaningful at approximately 4.6 percentage points, with the strongest composite up 1.93% and the weakest down 2.72%.
Carry led at +0.57%, closely followed by Momentum at +0.52%. Credit was the strongest asset class by a wide margin, returning +1.21% on average with every credit composite positive. Rates were the weakest at –0.09%.
The central QIS story in August was the return of carry.
Eleven of 13 carry composites generated positive returns. Credit Carry gained +1.93%, the strongest result in the universe, while Credit Short Volatility added +1.71%. Credit Momentum also performed strongly at +1.44%, and Credit Value returned +0.81%.
This consistency reflects an important distinction in the broader market backdrop. Sovereign rates were volatile, but that volatility did not develop into generalized credit stress. Investment-grade spreads remained close to historical lows, high-yield spreads tightened, and strong corporate earnings supported risk appetite. Credit therefore offered one of the few areas where income, trend and relative value were aligned.
Commodity carry also recovered from July’s dislocation. Commodities Short Volatility rose +1.89%, Commodities Liquidity gained +1.18%, and Commodities Carry added +1.12%. Oil remained volatile but finished only modestly higher, allowing volatility and curve premia to normalize rather than compounding into another short-convexity shock.
The contrast with July is instructive. Carry did not recover because macro risk disappeared. It recovered because the month’s major risks—energy volatility, rate repricing and geopolitical uncertainty—did not translate into persistent, broad-based market stress.
Global equities advanced in August, led by a rebound in technology and AI-linked exposures. That supported Equities Growth, which gained +1.55%, making it one of the month’s five strongest composites. Quality, ESG and Size also finished positively.
Yet the average return across equity composites was essentially zero.
The principal reason was Equities Correlation, which declined –2.72%, the weakest result in the entire QIS universe. The strategy had benefited from July’s synchronized deleveraging and abrupt repricing of crowded positions. In August, those relationships partially normalized as technology recovered and performance once again differentiated across software, semiconductors, regions and individual AI beneficiaries. The loss left Equities Correlation only modestly positive for the quarter to date, at +0.63%.
Equities Low Volatility also fell –0.99%, consistent with the return of risk appetite and renewed technology leadership. Meanwhile, Equities Momentum remained slightly negative at –0.21%, suggesting that August’s rebound was not simply a continuation of established factor trends. It was partly a reversal of July’s positioning shock.
That distinction matters. The market rewarded participation in the rebound, particularly through Growth, but did not provide a uniformly supportive environment for systematic equity relationships.
August contained several substantial macro moves: gold and silver rallied, front-end U.S. yields repriced higher after Jackson Hole, European and Japanese sovereign bonds sold off, and the yen weakened despite rising expectations of further Bank of Japan tightening.
Even so, these moves did not translate into broad gains for macro-sensitive QIS strategies.
Rates were the weakest asset class on average. Rates Long Volatility lost –0.97%, while Rates Carry and Rates Value were also negative. Rates Momentum gained +0.47%, and Rates Short Volatility returned +0.51%, but these gains were insufficient to offset the broader weakness.
The outcome reflects the shape of the rates move. U.S. front-end yields rose as the market priced a more hawkish Federal Reserve, but the 10-year yield ended close to where it began and the long end was partly supported by Treasury buyback measures. The repricing was meaningful, but fragmented across curves and regions. That created opportunities for selective trend and relative-value strategies without generating a sufficiently broad volatility expansion to reward rates convexity.
FX was similarly balanced. FX Short Volatility gained +0.64%, while Carry and Correlation were modestly positive. These returns were offset by FX Value at –0.51%, FX Momentum at –0.47% and FX Long Volatility at –0.25%.
The yen illustrates the difficulty. Coordinated intervention generated a sharp appreciation at the turn of July and August, but the currency subsequently weakened toward 160 per dollar even as Japanese yields rose and Bank of Japan expectations became more hawkish. The sequence created substantial event risk, but not a stable trend or mean-reversion regime. FX was active; it was not clean.
Top five: Credit Carry +1.93% · Commodities Short Volatility +1.89% · Credit Short Volatility +1.71% · Equities Growth +1.55% · Credit Momentum +1.44%
Bottom five: Equities Correlation –2.72% · Equities Low Volatility –0.99% · Rates Long Volatility –0.97% · Commodities Value –0.84% · Equities Long Volatility –0.69%
Equity reversal and rates convexity paid. FX relationship stability, equity trend persistence, and commodity short volatility did not.
The average QIS composite stands at +0.31% for 2026, although the median remains negative at –0.62%, and only 18 of 40 strategies are positive. The difference between the average and median points to a relatively concentrated return environment.
Carry remains the strongest bucket year to date, averaging +1.59%, followed by Equity Factors at +1.23% and Momentum at +1.01%. Value and Hedging remain negative, at –1.50% and –2.50%, respectively.
August restored a more supportive environment for QIS, but it did not resolve the market’s underlying tensions.
Carry remains attractive while credit spreads are stable and earnings remain resilient. However, the late-month repricing of Federal Reserve policy, the rise in European and Japanese yields and the persistence of energy-related inflation risk leave that support conditional rather than structural.
Three issues are likely to determine the next phase of the QIS opportunity set: whether the AI rebound broadens beyond a concentrated group of beneficiaries; whether higher policy expectations begin to weaken credit and equity risk appetite; and whether the yen–JGB complex develops into a persistent macro trend rather than another sequence of interventions and reversals.
August’s lesson is therefore not simply that carry returned. It is that carry recovered where market stress remained contained, while strategies dependent on stable correlations, broad convexity or clean macro relationships continued to face a more demanding regime.
That combination continues to favor systematic diversification across genuinely different return drivers—not because every sleeve will work simultaneously, but because the location of the next dislocation remains difficult to predict.