A diverse set of performance drivers
Discretionary Global Macro managers positioned for a risk-on environment in the month of April were rewarded. In interest rates, positions in US yield curve steepeners were often among the best performing trades. In credit, a long exposure to European periphery and US government-sponsored enterprises (GSEs) contributed positively while Emerging Markets (notably Argentina) detracted. A steady rally in crude oil prices and global equity indices was beneficial to managers with long positions. Managers with long US dollar exposure against developed Market currencies gained, as did those receiving Australian interest rates.
Trend followers outperform
Systematic Trading managers posted a second consecutive month of strong performance, with trend following strategies able to capitalize on clear trends in equities, energy and agricultural markets. The improved risk-on sentiment also resulted in a correction of trends in global bond prices. Commodities proved to be a fruitful supply of returns, with agricultural markets in particular exhibiting consistent direction. Managers were able to capture downtrends in cattle, soybeans, wheat, and coffee markets, with the latter reaching a historical low. The continued rally in crude oil benefited managers with long exposure.
Market exposure still key for performance
Equity Hedge managers broadly performed well, with a high level of dispersion of returns. Managers with exposure to Cyclicals, Financials, Technology, Semiconductors and Software outperformed. Managers with long exposure to US Healthcare underperformed as the debate around a single payer system in the US resurfaced heightening policy uncertainty. Some managers benefited from a rebound in Airlines, while those with a value bias continue to lag. Although managers have been able to deliver strong returns from stock-picking, market exposure remains a significant driver of performance. Managers’ net and gross exposures have normalized since the beginning of the year and higher levels of risk are being deployed.
Risk-on environment benefits Event Driven managers
Event Driven managers continue to perform well. Special Situations was the top performing strategy, benefiting from the broader risk-on environment as well as developments in idiosyncratic positions. Activists gained thanks to high directional exposure to large cap and defensive sectors. Distressed managers performed well, and structured credit managers also contributed positively, continuing to benefit from the carry as well as the rally in Puerto Rico muni bonds. Exposure to Emerging Markets brought some volatility this month, managers with long exposure in Latin America in particular suffered. Port-reorg equity strategies gained partly thanks to the broader rally in equity markets. Positive developments regarding restructuring in specific names provided an uplift to those with long exposure.
Convertible bond arbitrage strategies continue to drive gains
For a fourth consecutive month Relative Value ended the month in positive territory, with every sub-strategy contributing to gains. Managers with a focus on convertible bond arbitrage benefited from continued strong issuance and the friendly risk-on environment. Structured credit portfolio gains were helped by positive carry against a relatively calm market backdrop. Corporate credit strategies gained from the relative outperformance of lower vs higher-rated securities, while Sovereign Fixed Income Arbitrage strategies also contributed positively. Volatility overall had bottomed-out mid-month to reach year-to-date lows, to the detriment
of Volatility Arbitrage strategy opportunity sets.
HF Flash Report
Download our latest report
This document is not intended for persons who are citizens of, domiciled or resident in, or entities registered in a country or a jurisdiction in which its distribution, publication, provision or use would violate current laws and regulations. In particular, investment funds or any other collective placement instruments which have not been authorised for public offering in the investor’s country of domicile may only be offered as private placements to qualified investors. Additional investment restrictions may be provided for in the official offering documentation (available upon request). The information and data furnished in this document are disclosed for information purposes only; the Pictet Group is not liable for them nor do they constitute an offer, an invitation to buy, sell or subscribe to securities or other financial instruments. Furthermore, the information, opinions and estimates in this document reflect an evaluation as of the date of initial publication and may be changed without notice. Information and opinions presented in this document have been obtained from sources believed to be reliable, and, although all reasonable care has been taken, the Pictet Group is not able to make any representation as to its accuracy or completeness. The value and income of the securities or financial instruments mentioned in this document are based on rates from the customary sources of financial information and may fluctuate. The market value may vary on the basis of economic, financial or political changes, the remaining term, market conditions, the volatility and solvency of the issuer or the benchmark issuer. Moreover, exchange rates may have a positive or negative effect on the value, the price or the income of the securities or the related investments mentioned in this document. Past performance must not be considered an indicator or guarantee of future performance, and the addressees of this document are fully responsible for any investments they make. No express or implied warranty is iven as to future performance. Investors shall conduct their own analysis of the risks (including any legal, regulatory, tax or other consequence) associated with an investment and should seek independent professional advice. The content of this document is confidential and can only be read and/or used by its addressee. The Pictet Group is not liable for the use, transmission or exploitation of the content of this document. Therefore, any form of reproduction, copying, disclosure, modification and/or publication of the content is under the sole liability of the addressee of this document, and no liability whatsoever will be incurred by the Pictet Group. The addressee of this document agrees to comply with the applicable laws and regulations in the jurisdictions where they use the information reproduced in this document. This document is issued by the Pictet Group. This publication and its content may be cited provided that the source is indicated. All rights reserved. Copyright 2019.