Yield curve steepeners detracted from the Global Macro strategy’s performance

Global Macro managers showed a fairly high level of return dispersion in September. On 22 September, the US Federal Reserve signalled that it might soon reduce its bond purchases and confirmed that a series of rate hikes could begin earlier than expected. This triggered a sharp sell-off across DM government bond markets. Some managers promptly increased rates paying positions in the US, UK and Europe in the second half of September, which turned out to be a significant contributor to performance as bond yields jumped towards the end of the month. Overall, managers who entered September with meaningful yield curve steepeners and outright short positions in the back-end of the US suffered during the first part of the month, had to reduce risk and failed to recoup the losses. Commodities, with long positions across the energy complex were a source of gains.

The US dollar strengthened over the month, both against DM currencies and EM counterparts. The risk allocation to FX remains relatively low across managers, so that currencies generally only had a modest impact on P&L. Despite short US Treasury and EM FX hedges, EM-focused macro were negatively impacted by a broad decline across EM credit and local rates markets in September.

Sharp reversals in Fixed Income, especially in Europe, combined with volatility across equity markets proved to be challenging for Systematic managers with contrarian models and a bias towards sectors such as equities and fixed income. On the other hand, managers with more risk deployed into commodities and positioned short EM FX registered gains during the month.

Equity Hedge

Equity Hedge managers navigated the market sell-off relatively well

September was a challenging month, equities sold off by more than 4% on a global basis and Japan was the only positive market that continued to recoup previous YTD losses. All the other regions were negative but maintained a comfortable positive note for the year. The main exception was China, which is down about 10% YTD. The drivers of this dark month included concern within China about one of its largest real estate developers, Evergrande, which is facing interest payment issues; rising input costs from labour to commodities; and the FOMC meeting late in the month when Chairman Powell indicated that the central bank could begin tapering as soon as their next meeting in November. This sparked a spike in long-term interest rates and a pullback in growth stocks with rich valuations. Investors rotated into more Value and Cyclical companies such as Financials and Energy. In general, Equity Hedge managers had previously reduced exposures and recently increased their short book, which enabled many of them to navigate this month relatively well. Nevertheless, longs underperformed shorts and alpha generation was challenging considering also that growth and momentum factors underperformed.

Event Driven

The market is adapting to the changes in the US antitrust landscape

Event Driven managers across equity and credit performed relatively well against a challenging market backdrop. Most Event Driven managers were flat to slightly positive for the month.

HY credit market saw spreads tighten slightly, and YTD performance is led by energy and Covid-impacted sectors, including Transportation and Gaming & Leisure. This benefitted managers who still held some credit dislocation positions from 2020.
In Merger Arbitrage, activity levels in September fell from a peak in August. The combination of increased concerns over the Delta variant and general market volatility dampened short-term deal making.

However, spreads in general compressed in early September as the market continues to recover from the Willis Towers Watson deal break and the market becoming more comfortable with the new reality of antitrust enforcement. Given the lower valuation and more stable regulatory environment in Europe and Asia, ex-US deals were the outperformers.

Relative Value

Are SPACs back?

Relative value strategies had a good month. Multi-Portfolio manager funds delivered strong performance, with a significant contribution from equities market-neutral strategies. Positive returns were heavily weighted to the materials, industrials and consumer discretionary sectors. Convertible arbitrage benefitted from a healthy issuance of new bonds with a number of very sizable deals from issuers globally.

Regarding fixed income arbitrage, inflation positions were additive to return as the market started to price in a higher inflation environment. SPACs arbitrage had a good month too. Good deal closing and IPO activity helped to restore confidence in the asset class. The broad SPAC market moved from discount, to premium, to trust value as a result, thereby generating healthy profit.

HF Flash Report

Dear Reader, Thank you for your interest in this report. Please note that this Monthly Report will be from now on replaced by a Quarterly report.

Download our September 2021 report

Sign up to receive our publications


This document is not intended for persons who are citizens of, domiciled or resident in, or entities registered in a country or a jurisdiction in which its distribution, publication, provision or use would violate current laws and regulations. In particular, investment funds or any other collective placement instruments which have not been authorised for public offering in the investor’s country of domicile may only be offered as private placements to qualified investors. Additional investment restrictions may be provided for in the official offering documentation (available upon request). The information and data furnished in this document are disclosed for information purposes only; the Pictet Group is not liable for them nor do they constitute an offer, an invitation to buy, sell or subscribe to securities or other financial instruments. Furthermore, the information, opinions and estimates in this document reflect an evaluation as of the date of initial publication and may be changed without notice. Information and opinions presented in this document have been obtained from sources believed to be reliable, and, although all reasonable care has been taken, the Pictet Group is not able to make any representation as to its accuracy or completeness. The value and income of the securities or financial instruments mentioned in this document are based on rates from the customary sources of financial information and may fluctuate. The market value may vary on the basis of economic, financial or political changes, the remaining term, market conditions, the volatility and solvency of the issuer or the benchmark issuer. Moreover, exchange rates may have a positive or negative effect on the value, the price or the income of the securities or the related investments mentioned in this document. Past performance must not be considered an indicator or guarantee of future performance, and the addressees of this document are fully responsible for any investments they make. No express or implied warranty is iven as to future performance. Investors shall conduct their own analysis of the risks (including any legal, regulatory, tax or other consequence) associated with an investment and should seek independent professional advice. The content of this document is confidential and can only be read and/or used by its addressee. The Pictet Group is not liable for the use, transmission or exploitation of the content of this document. Therefore, any form of reproduction, copying, disclosure, modification and/or publication of the content is under the sole liability of the addressee of this document, and no liability whatsoever will be incurred by the Pictet Group. The addressee of this document agrees to comply with the applicable laws and regulations in the jurisdictions where they use the information reproduced in this document. This document is issued by the Pictet Group. This publication and its content may be cited provided that the source is indicated. All rights reserved. Copyright 2020.