Understanding what your fund is exposed to at the touch of a button, and how it is expected to behave in various market conditions, can be invaluable any time, but especially when volatility spikes.
In today's rapidly changing financial landscape, market gyrations and volatility have become a significant challenge for funds. Virtually no market has been immune from the most recent events sparked by global trade tariffs, with the performance of many assets becoming closely correlated. In early April 2025, during the height of the uncertainty over future trade relations, volatility jumped significantly, with the VIX index up more than 250% versus the low seen in February.1 These latest fluctuations are just one example of an increase in volatility, but they have underscored the need for a profound understanding of portfolio dynamics to help navigate market volatility.
Below, the Citco group of companies’ (Citco) Portfolio Analytics team delves into the importance of having solutions to help guide funds through volatile periods.
Understanding fund exposures
One of the foundational steps in navigating market volatility is to have a clear grasp of what a fund is exposed to. This involves a thorough analysis of the underlying assets within a portfolio, the leverage the fund is carrying, and the impact of any non-linear instruments in the portfolio. This knowledge is crucial in assessing the potential impact of market movements on the portfolio's overall performance.
To understand a fund's exposure, it is essential to understand the true investments being made based on its portfolio positions. This requires a deep dive into how each portfolio position contributes to the overall exposure to the market.
It is crucial that each position is appropriately tagged with sector, country, region, strategy and similar attributes, so that when exposures are rolled up to the fund level, it is simpler to identify any concentration risks and large exposures. These attributes can be sourced either from market data vendors or directly from clients based on their preferred reporting classifications.
Daily gross leverage monitoring
Leverage doesn’t stay static, especially in a volatile market. If there are non-linear positions like options, the impact of market movements on leverage cannot accurately be predicted by just looking at exposures. Scenario analysis needs to be brought in to provide a more complete picture.
Currency hedges
Currency markets are typically characterized by low volatility, especially in developed markets. However, crises can result in wild gyrations in currency markets, even against the more stable currencies such as the US dollar, as witnessed in the most recent crisis in March 2025 sparked by the introduction of trade tariffs globally. Being able to check the effectiveness of currency hedges quickly, and rebalance them as necessary, can help ensure hedges are doing their job properly.
Performance analysis in volatile times
Surprises can emerge from various sources during a crisis, with unexpected changes in market sentiment in response to policy shifts, geopolitical events, or economic data all commonplace. As a crisis unfolds, it can be essential to continually assess how a portfolio performs relative to expectations. This involves tracking performance at various reporting levels, understanding what the contributors are towards overall performance, and making comparisons to benchmarks as applicable.
Having a clear understanding of how a fund is performing, and the drivers of that performance, can be critical to managers communicating transparently and effectively with end investors during these periods.
Citco Portfolio Analytics – the solution for risky times
By gaining a comprehensive understanding of fund exposures, leverage, currency hedges and performance all in one place, alongside the ability to perform scenario analysis, funds can better navigate the challenges posed by an ever-changing financial landscape.
Citco Portfolio Analytics provides all these solutions, helping clients understand and analyse their funds more effectively. The interactive dashboard provides ready-to-use analytics on portfolio exposures, performance attribution, and scenario analysis and stress tests for current and past periods, providing additional perspectives on the current market environment.
Providing daily gross leverage, the impact of specific events, or a breakdown of FX exposure and an assessment of the effectiveness of the hedges in place to prevent it, the dashboard assists clients in preparing for any eventuality.
The fully customizable solution offers users a range of portfolio analytics, giving users bespoke solutions that best fit their needs.
1The Vix INDEXCBOE:VIX climbed from a low of 14.77 on 14 Feb 2025, to a peak of 52.33 on 8 April 2025.
Citco Portfolio Analytics
With the Citco Portfolio Analytics platform, hedge funds and their managers are equipped with better visibility on investment exposures and returns to assess opportunities in their portfolios with confidence.