Themes for November 2024

As the year winds down, we reflect on a November shaped by three key themes: the steady resilience of Gamma Goblin, the ongoing real-time testing of the Sage Strategy, and a deep dive into the rapidly evolving world of cryptocurrency. Let’s explore how these unfolded.

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1. Gamma Goblin: The Tortoise Holds Its Course

As Gamma Goblin approaches its three-year anniversary, November’s remarkable bull market has seen high-beta strategies, like QQQ, edge ahead—29.3% to 28.4% since January 2022. Yet, the story of the tortoise and the hare fits perfectly here.

The “hare” has edged ahead, but Gamma Goblin, like the “tortoise,” relies on steady, disciplined progress. Its risk-adjusted metrics tell a compelling story:

• Gamma Goblin: Annualised return of 11%, standard deviation of 9%, and an Information Ratio of 1.26.
• QQQ: Annualised return of 15%, standard deviation of 22%, and an Information Ratio of 0.68.

If one were a betting man or woman, the smart money would surely be on the tortoise. Gamma Goblin’s design reflects a long-term focus, balancing stability and growth to navigate a variety of market conditions. We’re finalising the next iteration of Gamma Goblin, which will focus on improved adaptability and execution in changing environments.

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2. Sage Strategy: Real-Time Testing in Low Capital

The Sage Strategy remains in a low capital state, deliberately so, as it undergoes real-time testing. While Sage has underperformed during this robust bull market, this is consistent with its design—a low-drawdown strategy built for volatile or bearish conditions.

Sage provides invaluable insights into risk management and portfolio resilience. We remain pragmatic in our approach: if Sage fails to deliver its intended purpose, we’ll draw the appropriate conclusions. For now, it continues to offer valuable lessons in strategy refinement.

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3. Cryptocurrency Research: A DeFi Expedition

This month, we explored the fascinating world of Decentralised Finance (DeFi), focusing particularly on liquidity trades. DeFi represents a vibrant yet chaotic frontier, where innovation abounds, but risks loom large. A new generation of traders—many remarkably young—are pioneering this space, crafting terms like “impermanent loss” to describe unique challenges.

Key Insights

• Impermanent Loss and Liquidity Pools: Liquidity providers face temporary losses when token prices diverge, a risk that must be hedged intelligently.
• Diverse DeFi Ecosystem: With over 100 DeFi exchanges, the landscape is fragmented and unregulated. Some platforms offer robust protections, while others are little more than a gamble.
• Future Promise: DeFi is reshaping finance, offering opportunities for those who can balance innovation with stringent risk management.

DeFi remains a wild and unpredictable frontier, but for those willing to tackle its complexities, it holds immense potential. Our exploration continues, as we investigate how these innovations might integrate with traditional systematic strategies.

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4. Market Recap: November 2024

Equities

• The NASDAQ-100 (QQQ) delivered a robust 5.35% return, driven by advances in technology and artificial intelligence.
• Broader indices such as the S&P 500 and Dow Jones also recorded strong gains, reflecting widespread market optimism.

Cryptocurrency

• Bitcoin broke the $90,000 barrier, with Ethereum and other DeFi-focused altcoins experiencing significant rallies.

Sector Trends

• Renewables: COP29 policies provided a tailwind for renewable energy stocks, which outperformed.
• Consumer Discretionary: Record-breaking Black Friday sales boosted retail and e-commerce stocks.

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5. Our Vision: Balancing Research and Finance

Sterling Alpha remains a passion project, managed alongside our full-time roles as researchers in other domains. Looking forward, we plan to dedicate more time and resources to advancing our financial strategies. This transition reflects our confidence in the transformative potential of systematic investing.

Our ultimate goal is to refine our approaches further, ensuring that our strategies remain relevant and effective in an ever-changing market landscape.

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6. Looking Ahead

Gamma Goblin remains the bedrock of our portfolio, consistently delivering risk-adjusted returns. Sage is under real-time testing, helping us refine its design and purpose. Meanwhile, our foray into DeFi offers a glimpse of the future—complex, uncharted, and brimming with opportunity.

As 2024 concludes, we’re reminded of the importance of discipline, innovation, and adaptability in the world of finance.

Thank you for reading, wishing you steady gains and fewer surprises—may your investments channel the tortoise’s wisdom.

Yours faithfully,
DBH,
Sterling Alpha Group