TL;DR
- The New Year invites reflection on the past and planning for the future.
- Recent geopolitical shifts mark the start of a new macroeconomic context for investment strategies, with two technologies already shifting the political and economic landscape.
- Change is inevitable and fortune favors the prepared.
- As we reflect on the past we prepare for the future, we look forward to sharing some exciting corporate and strategy news with you in the New Year.
The turning of the calendar resonates with many of us. For some, the holidays are a gift of time, to reconnect with family and friends. Others are surprised that yet another year has flown by and will take the opportunity to make resolutions for the coming year. The more diligent among us use the changing of the year as the signal to perform an annual test of their home carbon monoxide detectors.
At QTS, the end of the year provides us a natural pausing point, the opportunity to step back and reflect on the past and, importantly, think about the future.
As a manager of a commodity pool, the global macroeconomic environment provides important context for us when evaluating available opportunities:
In the decades following the fall of the Berlin Wall and the dissolution of the Soviet Union, many of the world’s political economies appeared to shift toward market-oriented capitalism and liberal democratic principles. This period was characterized by increased global interconnectedness through trade and the transformative power of the internet. However, this trend was not universal, as regions like the Middle East faced unique geopolitical and economic challenges, and some countries experienced reversals or stagnation in democratization.
By the 2010s, these trends began to slow and, in some cases, reverse. Global trade saw increasing challenges from protectionism, and technological advances like the internet became more fragmented, with some countries such as China developing distinct digital ecosystems. At the same time, transformative innovations like blockchain emerged, with the potential to disrupt the financial system, reshape concepts of money, and redefine banking.
The global order shaped after World War II is evolving, influenced by China’s growing role in global affairs, a renewed Russia, and the increasing agency of nations in the Global South. Shifting alliances have introduced new complexities to geopolitical dynamics, creating opportunities for new strategic alignments while putting traditional partnerships under strain. In Europe, military activity has brought conflict closer to the continent’s edge, challenging decades of relative peace.
Parts of the Middle East continue to experience considerable geopolitical challenges, marked by ongoing tensions involving Israel, the Gaza Strip, Lebanon, and Syria. These dynamics contribute to a complex and unpredictable geopolitical environment in the region.
In the United States, the political landscape has continued to evolve, and recent developments point to a shift distinct from the decades immediately following the Cold War. The likelihood of new geopolitical alliances being formed appears higher as existing ones face pressures. At the same time, the prospect of large-scale conflict seems less remote than it did 20 years ago. Additionally, questions remain about whether the global response to future crises, such as pandemics, will match the coordination seen in the past.
Geopolitics and macroeconomics are not the only forces influencing the future. Two technologies have dominated headlines in recent years and are poised to shape the future: artificial intelligence (AI) and blockchain.
AI, particularly large language models (LLMs), has been in the spotlight since OpenAI released ChatGPT to the public in November 2022. Since then, updated LLMs have been launched by OpenAI and competitors like Anthropic’s Claude, with rapid advancements driving a competitive race. These models are transforming daily life through applications in call centers, business software, creative industries, as virtual coders, and more.
At QTS, we are deeply familiar with AI—our founder, Dr. Ernest Chan, began working in the field of artificial intelligence and language modeling in the 1990s, and today we integrate machine learning techniques into our internal trading strategies.
The early 2010s saw the emergence of blockchain as a wildcard innovation. Over the years, it has transitioned from a niche topic among tech enthusiasts to a significant financial tool, with cryptocurrencies gaining traction as a recognized asset class. In 2024, the approval of ETFs for BTC and ETH in the United States marked a new level of institutional acceptance for digital assets. With greater regulatory clarity and a favorable U.S. administration, cryptocurrencies are becoming a viable consideration for institutional investors.
Finally, beyond political, economic, and technology trends, the visible effects of climate change are increasingly shaping the global economy. From energy markets to agriculture, these changes impact the commodities we trade, with broad implications for long-term strategy and resource allocation.
We don’t put pen to paper to raise alarms about the macroeconomic environment but rather to share our thoughts and the work we’re focused on. Whether your mental model is one of pendulums swinging or of history moving in cycles, change is inevitable. And: fortune favors the prepared.
Our job at QTS is to deeply interrogate shifts large and small and to strategically leverage our expertise to deliver maximum value to our investors. In our internal discussions about the evolving global macroeconomic environment, we believe that the near- to mid-term conditions could be favorable for diversified CTA strategies. Historically, trend-following strategies have demonstrated their ability to deliver crisis alpha[1]. Volatility and market shocks can create opportunities for CTA strategies, making them a valuable complement to more traditional investment approaches.
So, how are we preparing? At a conceptual level, we pay attention to the macro context and aim to remain appropriately nimble. At a tactical level, we continue to refine our AI/ML-enabled quant strategies, Tail Reaper and Phoenix. In between, at the all-important strategic level, we look for ways to diversify our set of strategies and for ways to gain access to elite managers (both established and emerging) and strategies that can be beyond reach of many in the industry. We spent a good part of 2024 on this strategic topic and are looking forward to sharing some exciting news on that front in the New Year.
As we conclude an exciting year for the firm, we would like to say thank you to our investors, partners, friends, family and colleagues. You’re the reason we do this, and we also couldn’t do this without you. Wishing you all happy holidays filled with warmth and joy, and all the best for a healthy, happy, and prosperous 2025!
[1] Clenow, A. F. (2023) Following the Trend (2nd ed.)
DISCLAIMER
- The information and opinions contained in this document are for background purposes only and do not purport to be full or complete. The information in this document is not personalized investment advice or an investment recommendation on the part of QTS Capital Management, LLC (“QTS”). No representation, warranty, or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document, and no liability is accepted as to the accuracy or completeness of any such information or opinions.
- All investments involve the risk of a loss of capital. QTS believes that its proprietary investment program and research and risk-management techniques moderate this risk through the careful selection of portfolio investments. However, no guarantee or representation is made that QTS’ investment program will be successful, and investment results may vary substantially over time. Past performance is not necessarily indicative of future results.
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- This material contains information obtained from third party sources which are believed to be reliable but which are presented without any warranty as to their accuracy or completeness.
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