Global Macro

The rally across risk assets fuels the performance of EM focused managers

The Global Macro strategy continued to perform well in May, led this month by EM focused managers. A strong rally across risk assets helped funds exposed to EM credit and local rates to achieve sizeable gains. Local rates positions in Mexico, Russia and South Africa were notable contributors to performance. DM Macro managers, while positive, generally underperformed due to a relatively cautious positioning. Yield curve steepeners (especially in the US), short USD against the EUR and AUD and tactical long equity indices (notably in the UK) generated gains. Systematic managers posted mixed returns in May on the back of a very sharp V-shaped recovery in equity markets with little attention paid to the continued deterioration in fundamental factors across different regions. Net long USD in FX and short energies proved to be painful in May. Long fixed income instruments remained a consensus trade within the universe.

Equity Hedge

Growth and momentum keep outperforming

Equity Hedge managers continued to perform well after a strong month in April, capturing a significant portion of the equity market rally. Alpha this month came mainly from the style effect, industry tilt came second while selection effect was broadly neutral. All style factors were positive, but were led by growth and momentum. From a region standpoint, Asia and particularly China generated the most alpha long and short. In the US, the outperformance was led by the long book. The best sectors in terms of alpha were technology and communication services from the long book, while real estate and energy were the largest alpha generators for the short book.

Relative Value

New issuance increases opportunity set of Convertible Bond arbitrageurs

Relative Value continued to deliver good return and recover from March losses. Fixed income and credit markets are progressively returning to some form of normality. Fixed Income arbitrage posted more gains as basis spreads and asset swaps continued to tighten from March wides. Municipal bonds managers benefited from both Investment Grade spread tightening and trading around new issues. In the same vein, strong issuance of bonds helped Convertible Arbitrage managers to source new ideas at attractive prices. Regarding Equity Volatility arbitrage, despite a fall in implied volatility and dispersion, long positions generated profit, as they “realised” higher on the back of relentless factor and sector rotation.

Event Driven

Cautious optimism about the post-Covid situation benefits net long activists and special situation managers

May was a mixed month for Event Driven managers. Credit managers continued to grind P&L. Those who were active in March and April buying high quality credits during the dislocation continued to benefit from general asset spread compression, while other managers benefited by participating in new issuance market at attractive pricing levels. Within equity-related event driven manages, net long activists and special situation benefited from a solid rebound in equity prices. The environment for risk arbitrage specialists remained challenging. M&A activity remains and deal breaks are at higher levels.

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