February performance drivers
Choppy fixed income markets weigh on returns
Global Macro managers delivered mixed results in February as they suffered from choppy conditions in US Treasury markets, but also stronger European government bonds and a range bound USDJPY. Short euro positions and a long exposure to US equites generated gains on the other hand. Managers focused on emerging markets outperformed and produced significant gains from long EM FX (Brasilian real, rouble) and credit.
Equity books outperform, commo hurts performance
Most CTAs delivered positive returns in February with strong gains in equity markets being the primary driver of performance. FX and fixed income sectors ended more or less slightly up on the month in managers’ books. As far as commodities are concerned, energies continued to be difficult to trade, as natural gas prices declined by over 10% throughout the month.
Beta-driven gains amid sector dispersion
Long/short equity managers were mostly positive on the month even though the bulk of the performance came from beta rather than alpha. In the US, sectors dispersion was relatively high with Healthcare (+6%) and Financials (+5%) leading the market. Energy (-2.7%) was the laggard of the month and was the main cause of pain for some US managers. Healthcare also performed strongly in Europe (+6%) but the Bank sector underperformed (-1.85%) mainly due to French banks.
Multi-strategy managers continue to register gains
Event Driven managers registered profits in their special situation books thanks to positive market sentiment worldwide. M&A books, on the other hand, suffered from spread volatility as major deals such as Humana/Aetna and Unilever/Kraft were withdrawn. Managers remain optimistic about the opportunity set in M&A, however, as they expect spread tightening in the coming months, and are hence adding to their exposure. Credit books posted gains in general, with legacy positions and energy and metals & mining high yield names moving higher on the month.
Positive month for credit managers
Credit Value managers posted gains amid another positive month for floating-rate financial preferred. Legacy positions saw noteworthy returns, mainly in the media sector, as did some post-reorganisation equity names. Caesars, in particular, finally came to the end of its restructuring programme. Energy and metals & mining in the high yield space continued their rally along with the sector, with coal situations leading the pack. Structured credit positions were also positive, with the exception of CMBS that detracted among increasing worries about retail exposure in these deals.
Supportive environment for equity and credit-related strategies
Relative Value managers delivered mostly positive returns on the back of a supportive environment across asset classes. Credit-related strategies made gains in corporate and structured credit. Within corporate credit, lower-rated bonds outperformed and managers won from long/short positioning across the energy, financial and healthcare sectors. In equities, managers navigated well through the earnings season and also benefited from a robust corporate news flow. Portfolio overlays & hedges detracted from performance. Volatilities remained subdued, especially on the equity side, which did not help volatility trading strategies.
Note: Returns are based on respective Eurekahedge index data estimates as at 28.02.2017 and can be subject to change
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