Performance in Periods of Extreme Market Dislocation

In turbulent markets, when asset returns become more volatile, they also become highly correlated, i.e. diversification works less well when it is most needed. The negative returns of many alternative investments in periods of declining equity markets suggests that what investors perceive to be uncorrelated alpha often turns out to be equity beta.

In contrast, an analysis of performance reveals that the Hathersage Long Term Currency Program has outperformed and has exhibited negative correlation to global equity markets in periods of extreme market stress or dislocation.

About Periods of Dislocation

A dislocation period occurs when markets cease to function 'normally'. This may be evidenced via numerous characteristics including, but not limited to, a collapse in liquidity, extreme price volatility, a significant or sudden absence of market participants and, in general, the inability for market segments to function in a 'normal' manner.

A hallmark of these periods is that while there are usually catalyst-type events that precede the dislocation, most periods have within them a 'tipping point' month wherein the markets reach a stress point that causes them to dislocate or stop functioning normally. The analysis looks at the five dislocation periods and compares performance in the month that represents that dislocation 'tipping point'.