You Might Not Want to Trade on These Dates in Q2. Here’s Why.

Executive summary:

• We believe that the best way to manage real-time risk during a transition event is by having heightened awareness of the potential for market volatility and reduced liquidity, in addition to working with a provider with robust derivatives and physical trading capabilities that also has the ability to combine these capabilities across numerous mandates.
• During Q2, we believe there is an elevated risk of market volatility when monthly U.S. inflation data is released, major central banks meet, and changes are made to key equity benchmark indexes.
• During Q2, we believe there’s likely to be reduced liquidity in markets around Easter weekend in EMEA, Ramadan in emerging markets, Golden Week in Asia and Memorial Day in the U.S. We also believe there may be some operational challenges in currency trading that arise after the shift to the T+1 settlement in the U.S., which is slated for May 28.

Planning on implementing a large portfolio change in the second quarter? You’ll want to pay attention to this calendar.

As we’ve shown in our real-time risk exposure reports, when it comes to transitioning assets within a portfolio, time is of the essence. That’s because real-time risk occurs at a much faster scale during the implementation phase, making every hour—and even every minute—matter. For instance, in the fourth quarter of 2023, one market hour of misaligned U.S. large cap equity exposure had a standard deviation of +/- 25 basis points (bps). For international developed equities, that number ticked up to +/- 29 bps. For U.S. Treasuries, it was even higher, at +/- 43 bps.

So, how do you manage this real-time risk when moving money in and out of your portfolio? We believe that the best approach is a combination of heightened market awareness and access to a provider with robust derivatives and physical trading capabilities that also has the ability to combine these capabilities across numerous mandates.