Despite one of the most extraordinary market events in recent decades (see histogram below), our Long-Short Equity strategy demonstrated resilience. Notably, it did not exceed its maximum historical drawdown based on simulations dating back to 2008. This outcome highlights the robustness of our approach and reinforces its ability to perform consistently in live market environments, even under extreme conditions, when compared to historical simulations.

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While the strategy’s recent volatility and drawdown were indeed significant, they did not represent the worst single month in our simulated history. 

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Furthermore, in relative terms, our strategy performed well when measured against comparable Long-Short Equity exchange-traded products in the US. For context, we constructed an equally weighted portfolio of such ETFs (ETFs EW), and our strategy stood out positively within this peer group.

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That said, we acknowledge that the strategy was not without its limitations during this turbulent period. From mid-February to late March, the model managed risk effectively and delivered strong performance (green area in plot above). However, it was challenged by the abrupt market reactions triggered by President Trump's unexpected announcements on April 3rd and 4th (red area in plot above). These types of sudden, event-driven moves fall outside the predictive scope of systematic models like ours.
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As detailed in our in-depth analysis https://www.alquant.com/news-insights/feature-article, such political surprises, like monetary policy shocks or corporate earnings surprises, are inherently difficult to anticipate.

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Our indicators have historically responded in a similar manner during comparable market drawdowns. On average, during corrections of 15–20%, they have reduced drawdowns by approximately 30% on a relative basis. In the recent episode, the relative reduction was 28%, consistent with past performance. However, the specific conditions leading up to early April, characterized by a temporary reduction in volatility and market tension, made anticipating this particular event even more challenging than prior crises such as COVID-19, the 2022 market downturn, or the financial crisis of 2008.

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It's important to highlight clearly: our model is not designed to predict unexpected announcements from political figures, corporate earnings surprises, or abrupt shifts in monetary policy from central banks.

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Another challenge during this period was the strategy’s rebalancing frequency. Because the index rebalances weekly or only when target exposure deviates significantly (by at least 30%), it was slower to adapt to the rapid market swings in early April. While this delayed response affected short-term performance, the chosen rebalancing framework plays an important role in keeping transaction costs low and maintaining operational simplicity.

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Lastly, the timing of our indicator signaling elevated risk on April 7 proved unfortunate, as it preceded the exceptional market rebound on April 9, also one of the strongest trading sessions in decades (see histogram above). Missing the bulk of such sharp reversals is a known trade-off inherent to systematic strategies. While this can be disappointing in the short term, it is fully aligned with the disciplined, rules-based nature of our approach.

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In conclusion, while the recent market event posed notable challenges, our Long-Short Equity strategy remained aligned with its core design principles. The strategy’s resilience, historical consistency, and comparative strength against peers affirm our confidence in its long-term value and robustness.

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