Global Macro

Short US Dollar positions prove to be painful

Global Macro managers posted mixed returns in July, with emerging markets-focused managers generally outperforming their developed markets-focused peers. FX was often the major source of losses for managers holding net short US dollar positions, particularly against the Norwegian krone, euro and Australian dollar. On the positive side, long gold exposure continued to generate profits. Fixed income, with US front-end receivers and long positions in Europe periphery bonds contributed positively to performance, while yield curve steepeners in the US produced losses. Emerging markets-focused performed well again this month thanks to local rates receivers, notably in Brazil, Mexico and Russia, as well as selected hard currency credit positions.

Systematic Trading

Powerful trends in equities and fixed income bolster returns

It was another good month for systematic managers with most of the profits attributable to strong trends in European fixed income, global equities and currencies. Global equities and European bond markets continued their bull-runs, climbing even higher in July. In FX, managers who captured the USD reversal gained handsomely. Equity statistical arbitrage strategies broadly suffered, with the bulk of losses coming from Japan. Trend-following programs in commodities had mixed results. A lack of clear trends in energy, continued price appreciation in gold and sell-offs in selected agricultural markets led to some dispersion in performance.

Equity Hedge

In the face of macro uncertainty, fundamentals dominate in July

Equity Hedge managers performed well albeit delivering more muted returns than in prior months. Developed market equities continued strong yearly performance, with the S&P 500 reaching new all-time highs. In the context of significant macroeconomic uncertainty, July marked the start of the second quarter earnings season giving fundamentally driven managers with stock-picking skills a boost. Funds with net exposure to technology, communications, consumer staples, and financials sectors gained while those with energy and health care exposure suffered. US health care specialists were forced to navigate a month of increasing political rhetoric and volatility in the run-up to the 2020 US presidential elections, resulting in some dispersion in returns.

Event Driven

Credit strategies lead gains

Event Driven managers were up slightly on the month with some dispersion among sub-strategies. Positive performance was led by credit, however special situations and merger arbitrage strategies implemented via equities also were a source of gains for managers. Portfolio hedges detracted modestly. Despite trade tensions continuing to weigh on corporate activity, a number of major US deals were announced this month providing managers with new merger arbitrage opportunities. Positive progress towards the closing of the Occidental-Anadarko deal led to deal-spread narrowing, benefiting some managers. PG&E, a major position for several Distressed managers, declined in part due to the release of a damaging investigative report. The utility company was forced to respond in federal court to claims of its potential negligence in powerlines which could have led to the California wildfires in 2011.

Relative Value

Compressed volatility spreads drive performance

Relative Value managers had another good month with the majority of sub-strategies finishing positively. Managers following US, EU, and Canadian convertible arbitrage strategies benefited from an environment of low interest rates and spread tightening. Single-name long volatility positions within convertibles contributed to gains. Within volatility relative value strategies, the compression of the spread between implied single-stock and index volatility resulted in dispersion trades driving much of the July’s performance. Strong new issuance and deal activity led to gains for strategies employing Special-Purpose Acquisition Companies (SPACs). Junior financials positions were a source of losses for some managers.

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