Macro

Fixed income drives Discretionary Global Macro managers’ performance

Discretionary Global Macro managers earned mixed returns in February. During the first part of the month fixed income books drove gains in the context of rising inflation fears. Short/paying positions in the back-end of the US, UK and European yield curves, curve steepeners and long inflation-linked bonds produced meaningful profits as did long commodities exposure. During the last week of the month, some managers gave back all former gains, suffering from the flattening of the curve and the reversal in the USD trade while others were able to lock in earlier gains. FX produced mixed returns. Systematic managers generated contrasting performance. Trend followers fared particularly well, whereas contrarian trading strategies earned muted returns.

Equity Edge

Equity Hedge strategy’s performance is fuelled by a surge in oil prices

Global equities surged in February with lowly-valued businesses faring better than technology enterprises. This was driven by the combination of optimism on the vaccine roll-outs and fear of rising yields. Commodities and the energy sector in particular were the standout performers as crude oil prices continue their upward trajectory. The second-best sector was financials. Equity Hedge managers with domestic UK exposure posted good returns thanks to the progress on vaccinations. Specialists in technology and health care had a more challenging month owing to sector rotation.

Event Driven

A flurry of big deals benefits Merger Arbitrage specialists

February was a good month for Event Driven strategies. Credit managers posted solid performance and Merger Arbitrage specialists continued to benefit from elevated deal flow. Some of the most notable recent announcements include Veolia $22bn hostile bid for Suez SA, the $11.7bn Icon Plc offer for PRA Health science and M&T Bank Corp plan to merger with People’s United financials ($9bn). By the end of the month, Merger Arbitrage spreads widened with market volatility leading to de-risking, especially in deals with regulatory concerns. Event Driven equity managers also benefited from high new issuance of SPACS and related pricing activity.

Relative Value

Relative Value managers continue to love SPACs and Convertible Bonds

Relative Value managers kept on generating positive performance on average. SPACs and Convertible Arbitrage continued to dwarf any other sub-strategies. Regarding SPACs, the relentless flow of new IPOs helped managers recycle capital and monetize gains at faster pace. Profits from Convertible Bonds continued unabated, albeit to a lesser extent. On the negative side, the unexpectedly sharp rise in US yields reverberated across asset classes and had ripple effects on Fixed Income Arbitrage strategies. In particular, the pronounced outperformance of the belly (~5 years) of the US yield curve hurted both volatility and curve relative value positions.

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