April performance drivers
Rangebound fixed income markets &
a weaker USD hurt returns
April proved challenging for Global Macro managers, with the exception of emerging market focused funds that continued to outperform. In general, long equity positions, especially in Europe, were overall a significant source of gains. However, choppy and rangebound fixed income markets in the US and Europe, as well as a weakening of the greenback against the euro and sterling resulted in losses. In commodities, long crude oil detracted from performance. Managers using derivatives to implement their trades continued to suffer from relatively low volatility levels in both FX and fixed income markets.
Short-term managers suffer from trend
corrections in FX & commo
CTAs were largely negative in April. The main pain points during the month were the corrections of trends both in FX as well as in commodities. Short-term managers were once again the most susceptible to these trend reversals, whereas long-term managers were somewhat more resistant. To an extent, gains in equities offset losses registered in the other asset classes.
Equity markets expand after first
round of French elections
Long/short European and Global managers were able to post strong returns overall, while US managers’ performance was more muted. Managers’ gains were driven by their net long exposure - particularly to Tech, Consumer Discretionary and Industrials. Financials in Europe rallied following the French elections’ first round results, as well as a strong earnings season thus far. Oil & Gas was the laggard in terms of sectors, but currently managers mostly maintain a neutral exposure. Cyclicals continue to outperform Defensives, a trend which started about nine months ago, with the recent rally in Europe mainly driven by Banks. In general, Long/short managers’ alpha generation has seen a recovery since the beginning of the year, with long positions outperforming the markets and vice versa for shorts.
Gains in equities & credit; M&A benefits
from spread compression
Event Driven managers enjoyed a strong month with gains across the board. Gains in M&A were driven by spread compression thanks to both deal-specific news as well as the general market sentiment, with deal activity remaining strong. Special situation books benefited from upbeat equity markets, with profits primarily in Tech and Financials. Post-reorganization equities were also positive. As far as credit is concerned, idiosyncratic events, especially in Energy, worked to the favour of managers’ credit books, while structured credit and in particular RMBS positions also added to returns.
Spread tightening across the board
Despite weaker commodity markets, several name-specific events benefited managers’ energy credit positions. Long-dated situations boosted returns, with positive developments on the Caesar’s front and another distribution from Lehman. Puerto Rico municipal bonds rebounded after a difficult month in March. In structured credit, fundamentals drove RMBS returns, whereas CLO returns were muted.
Managers slightly positive as volatility
drops to historical lows
Within credit, long/short positioning did well, especially in the financial and industrial sectors, while structured credit also contributed positively, mostly thanks to CLO and CMBS positions. Despite lower volatility at the index level (VIX recorded lowest intraday low of 9.9 in over a decade), idiosyncratic events and single stock moves benefited convertible bond arbitrage books. Equity-related strategies delivered mixed results, with market neutral long/short books being a drag on performance. Portfolio hedges continued to detract.
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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