Macro

Discretionary macro managers play the reflation trade

The reflationary theme, implemented primairly via curve-steepening positions, contributed to the performance of discretionary macro managers during March. These were primarily from paying positions in the back end of US rates and yield curve steepeners in the US and the UK. Moderate long exposure to US and European equity indices, sized up following the passage of US stimulus measures, were also positive contributors. Moderate remaining short USD positioning detracted and was sized down over the course of the month while long sterling versus euro contributed. Meanwhile, emerging market-focused macro managers suffered because of local-rate receivers in Mexico, Turkish credit and, in FX, long exposure to the Turkish lira, Russian ruble and Chinese renminbi contributed to losses. Systematic managers posted strong numbers. Most of the gains were attributable to long equity positions as well as steepeners in fixed income instruments.

Equity Hedge

Long books suffer for a technology bias

March was a strong month for most of the developed equity markets with Europe leading the pack followed by USA and Japan while Emerging markets and Chinese markets ended up both in negative territory. Despite the positive price actions across the main equity market indices, the long books of Equity Hedge managers underperformed in general. This was primarily due to their directional bias to technology, which was the worstperforming sector for the month across the board. Managers more value or trading oriented fared better than the more long-term fundamental managers who were trapped in the rotation.

Event Driven

Spread compressions support Event Driven Credit strategies

Event Driven credit managers were boosted by the rally of lower-quality credits in March. Spreads compression benefitted managers but also certain idiosyncratic processes that saw positive developments and subsequent mark ups. In contrast, merger arbitrage specialists suffered despite a solid activity widespread among sectors, with consumer non cyclicals, technology, financials and industrial leading both in terms of volumes and number of deals. Largest deals included the $28bn friendly cash and stock acquisition of Kansas City Southern by Canadian Pacific, the $20bn proposed unsolicited acquisition of The Hartford Financial Services Groups from Chubb Ltd and the $20bn friendly acquisition of Shaw Communications from Rogers Communication Inc. Net spreads have faded towards their long term average following 2020 volatility, although dispersion, bidding wars and spread volatility are welcome features in the space.

Relative Value

Is the SPACs era over?

Relative Value strategies delivered mixed results amid a more challenging environment. Managers involved in convertible arbitrage and SPACs were the most negatively affected. Issuances continued at a rapid pace. However, turbulences across risk assets in March weakened the demand which was not enough to absorb the supply of papers. It weighed down on secondary valuations as a result. High delta bonds and convertibles in the growth sectors largely underperformed. The period of exuberance in the SPAC market has probably came to an end in March with SPACs now trading at a discount to trust value. Sovereign fixed income was the bright spot. Uncertainties surrounding the future path of interest rates and inflation benefited volatility arbitrage positions on the Treasuries and EuroDollar curves.

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