Morning Note: Market News and an Update from Winton Trend Fund.

Market News

President Trump unveiled the first in a wave of promised letters that threaten to impose higher tariff rates on key trading partners, including levies of 25% on goods from major economies such as Japan and South Korea, which will take effect from 1 August. Both Asian countries will continue to seek a trade deal. This is another extension from the previous 9 July deadline and leaves the door open for additional trade talks. The euro gained 0.3% on a report that the US offered a deal to the European Union with a 10% tariff level.

US equities finished lower last night – S&P 500 (-0.8%); Nasdaq (-0.9%) – though ended off worst levels. In Asia this morning, equities posted modest gains: Nikkei 225 (+0.3%); Hang Seng (+0.8%); Shanghai Composite (+0.7%). Beijing launched new measures to curb price wars.

The FTSE 100 is currently little changed at 8,807, while Sterling trades at $1.3630 and €1.1610.

Fed chair contender Kevin Warsh told Fox Business that interest rates should be lower, arguing that “bad economic policies” from the central bank are constraining growth. Treasuries weakened with the curve steepening – the 10-year yields 4.40%. Gold trades at $3,330 an ounce. Brent Crude has moved back up towards $69 a barrel despite OPEC+ this weekend agreeing to a larger-than-expected production hike for August.

The UK may unveil progress in plans to build two nuclear reactors at Sizewell when Emmanuel Macron visits this week, according to people familiar. Meanwhile, President Trump called for new rules to restrict access to tax incentives for solar and wind projects, limiting credits to those with substantial construction.

Source: Bloomberg

Fund Update – Winton Trend

Diversification across asset classes is a critical element of managing your investments. At Patronus, when we construct a portfolio, we look to allocate a portion of capital to so-called ‘anti-fragile’ investments that provide shelter in difficult times when other (fragile’) asset classes (such as equities and bonds) are struggling to a generate positive return. We believe the Winton Trend Fund is one such investment.

Winton Trend is an actively managed fund which seeks to achieve long-term capital appreciation through a trend following strategy. The manager invests in a diversified portfolio of financial contracts (derivatives) that provide a return linked to the performance (up or down) of certain share indices, bonds, commodities, and currencies. Although the fund has a relatively short track record (since July 2018), it has performed very well in times of market stress.

Total assets in the UCITS vehicle currently stand at around $1.1bn, while the overall trend strategy has assets of just over $1.9bn.

·       The correlation to equities and bonds is low.

·       The fund employs a low level of leverage.

·       The annualised volatility is the rate at which the price of a fund increases or decreases for a given set of returns. It is measured by calculating the standard deviation of the fund’s monthly returns. It is currently just under 10%. The manager seeks to mitigate against sharp reversals – positions decrease when volatility increases; the system naturally takes profits.

·       Despite periodic bursts of outperformance for faster systems, Winton believes the evidence still suggests stronger performance for slower systems over most investment horizons. The fund continues to trade a blend of speeds with the twin aims of maximising risk-adjusted returns and portfolio diversification.

·       The fund is relatively low cost: 1% OCR (of which Management fee is 0.80%) and no performance fee.

The manager highlights that although trend-following strategies are often associated with strong performance in difficult times for the stock market, the strategy can also perform well at the same time as equities. What is more important for trend followers is the diversity of the trends on offer – the strategy tends to perform strongly when there are large moves relative to volatility in markets across multiple sectors. Managers can therefore increase the consistency of a trend-following strategy’s returns by maximising the range of idiosyncratic trends in which the strategy can participate.

Although it is difficult to predict where trends will come from, an investor can identify the types of environment where trend following works well. This is where there is a high level of uncertainty that leads to large market moves that are difficult to price in.

Overall, we believe the decision to hold the fund depends on whether it will perform well and provide capital protection during periods of market stress. Clearly, 2022 was such a year, with a marked pick-up in risk and volatility as a result of Russia’s invasion of Ukraine. The fund achieved an 18% positive return – outstanding in the context of the heavy fall in both equities (-8% for the MSCI World Equity Index in Sterling terms) and UK bonds (-15% for the Bloomberg/Barclays Bond Indices UK Govt 5-10 Year Index). On this measure, a typical 60/40 equity/bond portfolio was down by 10.8%.

Trend-following funds tend to struggle when a market move sideways or oscillates and when there is a sharp reversal in a trend. The latter factor explains the weak performance in the first half of 2025, with the fund generating an 8.0% negative return, leaving the annualised return since inception in 2018 at 4.14%.

Winton weren’t alone – the SG Trend Index fell by 10.4% in the first half, with a wide range of returns across constituents between +3% and -18%, with the dispersion reflecting differences in the use of non-trend signals, market weightings, and risk management approaches.

Looking at Winton in detail, in the second quarter, profits from precious metals and agricultural commodities were insufficient to offset losses from fixed income, equity indices, and energies.

·       Losses were suffered from short positioning in fixed income, with the lion’s share of negative performance accrued around Donald Trump’s “Liberation Day” day tariff announcement as yields fell to the detriment of the strategy’s short positioning. Japanese government bonds and German 10-year bunds were the largest detractors from performance.

·       Equity indices also detracted from performance amid the sudden sell-off and strong rebound. Positioning had already begun to reduce from February due to the strategy’s tilt to faster models in the sector, yet losses accrued amid the sharp market declines. Positioning was then whipsawed, with the strategy turning net short through April, before turning long again in mid-May amid the sharp bounce back in performance. The sector ended June as one of the top contributors on the month as the rally continued.

·       Late in the quarter, energies were the most challenging sector for trend followers. Short positions in oil and oil products were adversely affected when prices surged following strikes on Iran. Although prices later retraced much of their gains, these short positions had already been substantially reduced.

Overall, diversification has improved within the portfolio. Having started Q2 with a -0.3 beta to the 10-year US treasury note, the strategy ended the quarter with a small positive beta of 0.1, largely due to positioning at the short end of the curve. The strategy also ended Q2 with a net negative exposure to the US dollar. Positioning is mixed across the commodity sectors, with net long positioning in precious metals and net short exposure in crops, energies, and base metals. The strategy ended the quarter with a positive equity beta to the MSCI World of 0.4.

Although Winton Trend has been disappointing so far this year, we remain positive on the fund given its portfolio diversification attributes. At a time when the geopolitical and macro-economic outlook remain uncertain and the prospects for other asset classes remains unclear, we believe an allocation to Winton Trend Fund could continue to help mitigate any losses suffered elsewhere in portfolios.

Source: Bloomberg