By Toby Hayes, manager of the Trium Alternative Growth fund

In recent years, the structure of markets has become increasingly dominated by passive flows, with billions of dollars of capital flowing predictably and mechanically into a wide range of asset classes. At the same time, retail investors are ever more empowered to make speculative short-term trades, using extremely short-dated options to take a punt on the latest meme stock or big tech name.

When too many investors are compelled to act in the same way at the same time, market efficiency breaks down. With congestion creating glitches in the very structure of markets themselves, monetising these anomalies has become a valuable source of alpha. Congestion strategies are designed to capture these peculiarities in the foundations of markets, delivering returns that are entirely uncorrelated from macroeconomic variables or thematic rotations.

Worst of times, best of returns

Congestion-style strategies are designed to perform in all market environments – but they tend to thrive during periods of stress. These are moments when liquidity disappears, risk appetite collapses, and asset prices move not on fundamentals, but on positioning.

Such strategies target behavioural inefficiencies stemming from structural constraints, rather than sentiment or valuation. They offer a diversifying return stream that, in certain environments, can exhibit negative correlation to both equities and bonds.

What distinguishes these trades is not a view on inflation, growth, or central bank policy, but a deep understanding of how flows behave under capital constraints. Crowded trades create predictable price distortions. By anticipating these flows – and providing liquidity when it is most scarce – investors can capture the resulting anomalies in the process.

Curve congestion

When markets were rocked by tariff turbulence in April, a wealth of structural inefficiencies emerged, creating opportunities to capitalise on congestion. In some areas, normal market functioning has been flipped on its head entirely.

For example, because the long-term is more uncertain than the short-term, the price of longer-dated volatility should be higher than its shorter-dated counterpart. However, speculative trading by retail investors in the short-dated options market has pushed up the front end of the volatility curve of many popular stocks, while long-dated volatility has been structurally depressed – and their curves have become inverted.

This has created a remarkable situation. By buying depressed long-dated volatility – and simply waiting as it rolls up the curve as it approaches maturity – one gets paid to hedge. This can be achieved without taking a view on macroeconomic conditions or stock fundamentals but simply by exploiting this bizarre contortion in the market. And when risk-off events occur – now more frequent amid the uncertainty of Trump-era policies – volatility rises, enhancing returns further.

The state of rates

A similar phenomenon has occurred in the US rates market, where structured product flow from Asia, combined with the Fed acquiring 60% of the MBS market, has depressed the price of long end volatility versus short end. Neither of these structural flows are macro driven, but the distortions in long end volatility are a gift for congestion strategies to exploit. Any concerns over inflation or US funding pressures tend to cause sharp curve steepening and rising long end volatility, precisely where the strategy is positioned.

With US funding issues showing no signs of resolution as the Trump administration targets ever more fiscal expansion, the stress on the long-end bonds is never far away, and it should create further opportunities over the coming months. And if these concerns don’t materialise, the strategy will collect a small but positive roll return. Again, paid to hedge.

Structural strength

In today’s market, increasingly shaped by flows rather than fundamentals, congestion has become more of a structural feature than a rare event. With volatility cycles compressing and liquidity buffers eroding, congestion strategies offer something rare: a repeatable behavioural edge that doesn’t rely on predicting inflation, growth, or central bank decisions.

This isn’t macro trading or quant arbitrage. Instead, it’s a way to build structural advantage in a market shaped by mechanised capital and herd-driven dynamics. In an environment where everything feels increasingly predictable, behavioural dislocation may be one of the few inefficiencies left worth chasing.