Managers gain from a long exposure to precious metals and from a negative stance against the US dollar
July was a positive month for discretionary Global Macro managers.
In FX, a negative stance against the US dollar was a meaningful source of profits. A long exposure to precious metals also produced significant gains. In Credit, long US HY and IG credit via indices and long Europe periphery debt had a positive contribution, while yield curve steepeners in the US and hedges via equity indices detracted from performance. Emerging Markets focused managers generally outperformed. Majority of Systematic managers delivered positive returns in July. The performance was driven by long “rebuilt” equity exposure and continued strength among fixed income instruments, namely Europe.
Exposure to European stocks contributes to alpha generation
Equity Hedge managers posted strong returns this month. In terms of alpha, investments in European stocks led the pack, Asian exposure came second with strong upside capture while US investments were broadly in-line with the market. Technology specialists performed especially well while Health Care specialists did not fare particularly well this month. The funds’ leverage across the board was high.
High-yield spreads tightening benefits credit-sensitive strategies
Relative Value continued to perform well. The significant tightening of high-yield spreads acted as a strong tailwind for Structured Credit and other credit-sensitive strategies. In contrast, Fixed Income managers delivered mixed results. Within Equity Volatility Arbitrage, long gamma positions were broadly flat whereas dispersion strategies incurred losses from single-stock volatility dropping faster than that of the index.
Spreads compression weakens the recovery trade
July was a positive month for Event Driven managers. Credit managers who deployed significant capital into IG credit saw the recovery trade fizzle out as the spreads already compressed significantly in Q2. Merger Arbitrage specialists continued to benefit from further spread compression. Within Activist and Special Situations, managers benefited from a general net long stance in a strong up-trending market.
HF Flash Report
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