• Momentum strategies are a core part of any systematic investment approach. The challenge is to keep finding ways to improve returns, especially as core markets have become more crowded with such strategies.
• The good news is that momentum strategies in benchmark Canadian futures, whether the S&P/TSX 60 (SXF), the 10y bond (CGB) or the 5y bond (CGF), have delivered positive returns since the 2008 financial crisis. The Sharpe ratios have averaged around 0.3 to 0.4 but can go as high as 1.5 in periods of high or very low risk aversion.
• Moreover, momentum strategies in the S&P/TSX 60 equity contract have outperformed all the major equity index futures, including the S&P 500 (Chart 1). This is notable because momentum strategies in equity indices have struggled over the past decade.
• On the rates side, while momentum strategies in Canadian rates futures have not outperformed all major markets over the past 10 years, they have outperformed in more recent years.
• Therefore, adding Canadian futures to systematic momentum strategies could provide an important edge for investors.
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