Morning Note: Market news and an update on Winton Trend.

Market News

Donald Trump reiterated plans to fire federal workers, ratcheting up pressure on Democrats to end the shutdown. The White House has identified agencies for federal layoffs and is expected to announce them as early as today, CNN reported. The Fed’s Austan Goolsbee said new data produced by his staff suggests the labour market remains stable.

The Trump administration is considering easing tariffs on Scotch whisky, people familiar said. The UK has argued the move would benefit the US bourbon industry because it exports used casks to Scotch producers.

French PM Sebastien Lecornu cut the GDP growth forecast for next year to 1% from 1.2%, Les Echos reported. Emmanuel Macron is set to unveil his new cabinet this weekend, AFP said.

Treasuries were unchanged to firmer at the long end – the 10-year yields 4.10%. Gold trades at $3,863 an ounce, not far off its high. Brent Crude trades at $64.50 a barrel, its lowest level since May. Trump officials have cancelled $7.6bn of clean energy projects.

US equities edged higher last night: S&P 500 (+0.1%); Nasdaq (+0.4%). In Asia this morning – Nikkei 225 (+1.9%); Hang Seng (-0.9%) – Japan tech stocks rose on AI optimism, with Hitachi surging after announcing a tie-up with OpenAI. The yen weakened after Kazuo Ueda failed to indicate whether the Bank of Japan will raise rates this month. Markets were closed in China and South Korea.

The FTSE 100 is currently 0.3% higher at 9,459, while Sterling trades at $1.3455 and €1.1470. AstraZeneca’s US listing is expected to leave a £200m UK stamp duty hole.

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 $2.4bn.

·       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. 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.

However, the Sterling shares bounced by 5.9% in the third quarter, reducing the year-to-date drawdown to 2.7%, and leaving the annualised return since inception in 2018 at 4.8%.

Looking at performance in the third quarter in detail, equity indices and precious metals accounted for the lion’s share of profits, partly offset by fixed income, base metals, and currencies.

·       Global equity indices continued their post “Liberation Day” rally in Q3, with the strategy’s long positioning benefiting across a number of regions. However, the strategy's design means that it likely had less equity exposure than many peers, reflecting the emphasis the manager places on providing diversification from equities. The manager believes that the risk with large, long equity positions in trend following is that they can lead to heavy losses if markets reverse too quickly for the strategy to adjust, undermining the rationale for holding the strategy in the first place.

·       Precious metals were another bright spot for the strategy. Profits accrued across the sector, with long positioning in gold, silver, and platinum notably profitable as futures markets posted double-digit gains over the quarter. Agricultural commodities added to the gains.

·       Fixed income pared performance over the quarter. The strategy suffered losses from long positioning at the short end of the US yield curve, with further losses accruing from short exposure to the long end of the curve. Short positioning in Japanese government bonds was a bright spot in the sector as yields rose in the quarter.

·       Losses in base metals were concentrated in New York copper, with losses from long positioning accruing at the end of July. President Trump exempted ores and concentrates from his 50% copper tariffs. The New York copper future – which had been trending upwards – dropped 20% in a matter of minutes as its price converged with that of its London counterpart.

The strategy’s positive beta to the US 10-year treasury note rose from 0.1 to 0.4 over the quarter. The beta to the MSCI World also rose over the quarter, ending at 0.6, while the strategy’s beta to the Dollar Index was stable at -0.6. Positioning is mixed across the commodity sectors, with net long positioning in metals and net short exposure in crops and energies. Positioning is mixed across the commodity sectors, with net long positioning in precious metals and net short exposure in crops, energies, and base metals. Overall, the portfolio remains well diversified.

The company recently announced that after 17 years, co-CIO Carsten Schmitz will be retiring from Winton and leaving the investment industry at the end of the year for personal reasons. Simon Judes will continue as CIO, with Nick Thomas-Peter – a senior member of the investment team for over a decade – appointed to the new role of Deputy CIO. Thomas-Peter has been working on the development and scaling up of the firm’s mid-frequency futures and equity businesses. Although Schmitz had overseen the development of many of Winton’s key strategic initiatives, we expect to see an orderly transition.

Although Winton Trend has been mixed 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