December 16, 2024
December 2024 Commentary Blueprint Chesapeake Multi-Asset Trend ETF
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Portfolio Exposure At A Glance
Notable Holdings By Macro Asset Class
| CURRENCIES | |
|---|---|
| Name | Long/Short |
| Canadian Dollar/U.S. Dollar | Short |
| Australian Dollar/New Zealand Dollar | Long |
| Singapore Dollar/U.S. Dollar | Short |
| iShares Bitcoin Trust | Long |
| iShares Ethereum Trust | Long |
| COMMODITIES | |
|---|---|
| Name | Long/Short |
| Live Cattle Future | Long |
| Cotton Future | Short |
| Frozen Orange Juice Future | Long |
| Robusta Coffee Future | Long |
| Cocoa Future | Long |
| FIXED INCOME | |
|---|---|
| Name | Long/Short |
| U.S. 2-Year Note Future | Short |
| iShares Short-Term National Muni Bond ETF | Long |
| Australian 10-Year Bond Future | Short |
| iShares 0-5 Year HY Corp Bond ETF | Long |
| Japan 10-Year Bond Future | Long |
| EQUITIES | |
|---|---|
| Name | Long/Short |
| MicroStrategy Inc | Long |
| Canadian National Railway Co | Short |
| Carpenter Technology Corp | Long |
| PepsiCo Inc | Short |
| AZZ Inc | Long |
ETF holdings and macro asset class allocations are subject to change.
Currencies
Overview
The most noteworthy currency positions for TFPN belong to digital assets. Both the iShares Bitcoin Trust and iShares Ethereum Trust ETFs have meaningful allocations in TFPN. The former returned just under 40% and the latter increased just more than 40% in November.
While not a currency, it is also worth mentioning TFPN’s significant allocation to MicroStrategy. MSTR continued its recent surge at 58% clip last month, benefitting from its aggressive Bitcoin-buying strategy.
Drivers
Higher-volatility growth assets generally performed well in 2024, providing a favorable environment for crypto and blockchain investments. Moreover, the decisive election results in the U.S. and belief that the new regime will be more friendly to digital assets caused a multiplier effect, accelerating returns. As always, it is unclear how long these conditions will last, but we believe trend-following strategies are able to capture the upside better than other investing approaches.
Commodities
Overview
TFPN entered December resuming its small net long position. Among the major asset segments the ETF utilizes – currencies, commodities, fixed income, and equities – commodities will continue to be a smaller influence, with stocks and bonds being the primary drivers. So-called “soft” futures, such as cocoa, cotton, and coffee have significant allocations as we put a bow on 2024.
Drivers
By far the largest position among the commodity complex for TFPN is currently cocoa. The long allocation is split among the U.S.-based and London-based futures due to the potential for divergences among the contracts. Both can generate strong trends and as a result are treated accordingly. For example, in November the U.S. version March contract returned 26% with its British counterpart bringing a 36% return.
Fixed Income
Overview
At the overall asset level, fixed income remains the most significant allocation in the portfolio, with the dominant direction being long. Short-term bond futures and fixed income ETFs make up the bulk of the long portfolio, with longer-term bond futures being net short. Said another way, the bond book reflects bullish trends on the short duration and corporate/municipal/TIPS side and bearish trends among longer-duration instruments.
Drivers
The nuanced makeup of TFPN’s bond allocations highlights how precise exposures can be obtained in a systematic way with trend following. We are clearly biased, but we continue to be amazed at how such an intricate portfolio can be developed without any foreknowledge or even expertise in the various instruments. Without the benefit of systematic investing, we shudder to think how we would otherwise create a series of holdings that can benefit from strength in ETFs, such as those representing short-term national municipal bonds, while simultaneously shorting 3- and 10-year Australian sovereign bond futures.
Equities
Overview
Among equities, long U.S. companies is the dominant position as we close 2024. TFPN also has a meaningful net short position to international stocks, creating an interesting spread that takes advantage of the recent strength gap favoring U.S. stocks. Even with all the strength in the U.S., there are also some advantageous short opportunities, further improving the ETF’s risk-adjusted return profile, in our view.
Drivers
Besides MicroStrategy, which is currently the largest equity allocation in the portfolio, another notable long belongs to longstanding position AZZ Inc, the second-largest name in terms of exposure. The most significant U.S. short position is Pepsi, which closed November near levels not consistently seen since 2021. Internationally, the most meaningful short position is Canadian National Railway, which is also revisiting levels not seen regularly since 2021.
Portfolio Managers’ Note
Summarizing TFPN’s portfolio to its major positions results in the following headlines for December:
- Long crypto, blockchain, and digital assets
- Long commodities, such as cocoa and gold
- Long short-duration bonds and corporates/munis
- Short long-duration bonds
- Long U.S. stocks
- Short international stocks
Scanning these headlines, we’re reminded of what we consider one of the most appealing aspects of systematic trend following: the strategy’s ability to adapt seamlessly to global market movements across a vast array of assets. With trend following, investors are seldom out of sync with the market dynamics, and any misalignment is usually brief. Of course, this adaptability depends on the chosen timeframe, but once committed to the timeframe, trend following facilitates this level of flexibility.
Stocks and bonds are likely to remain staples in client portfolios, as they have throughout modern history. However, other assets can offer valuable non-correlation. We believe TFPN effectively packages these options in a way that resonates with financial advisors and is manageable for clients.
At the core, what makes a financial advisor truly effective is their ability to craft a strategy that can handle unpredictable, unknowable market elements to consistently deliver dependable results for clients. This involves planning, coaching, and executing – each a significant undertaking in its own right. We believe TFPN can enhance the execution phase, making it both achievable and, crucially, repeatable.
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