Global Macro

Macro managers gained on long DM fixed income positions

Fixed Income was the major source of profits as managers benefited from the sharp decline across DM government bond yields. Receiving positions in the front-end of the US, Australia and Canada curves were winners in February.  FX was generally negative, as some maintained a thematic short US dollar exposure. Several EM specialists outperformed thanks to a thematic long positioning across Asian local rates and a tactical short EM FX stance that more than offset losses from the credit side. Systematic strategies were negatively impacted in February, with a positioning generally long equities. With the market sell-off, most systematic strategies aggressively reduced the net long exposure in equities, driven both by the signals and the VaR-based risk management.

Equity Hedge

Equity Hedge managers contained losses in what was a difficult month for markets

Managers held up relatively well in what was the fastest correction in the S&P 500 on record. Over the challenging last days of the month, our Equity Hedge managers fared better than the market and generated a decent amount of alpha, with the best regions being Asia, followed by the US. That the sharp market down move did not lead to a rotation in style proved to be helpful, with part of the outperformance coming from their underlying factor exposures (long momentum and short value). Managers with a focus on Asia outperformed the rest of the universe.

Event Driven

Activist managers suffered from their net long exposure

Net long activist managers suffered the most, with declines in line with their net exposures and no significant alpha from their long books. Within merger arbitrage specialists, managers witnessed a general spread widening, which mainly impacted shorter-dated US deals. Credit managers held up relatively well although with large performance dispersion. Distressed HY bond spreads widened 140bp in the final week of February, a new high since August 2016, and the energy sector declined severely as oil price continued to slide. Managers being exposed to “post-reorg” equities also suffered in the market sell-off.

Relative Value

Relative Value managers weathered the market turmoil well

 A vast majority of managers weathered the market turmoil well, with some ending the month in positive territory. These good performances are the result of structural limited market exposure and solid risk management. Volatility strategies and Convertible Bond Arbitrage ended the period with positive performance, taking advantage of the spike in volatility, being long gamma/convexity. In addition, Convertible Bond arbitrage still benefits from corporate debt buybacks and a very active primary market.

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