July performance drivers
Mixed results as choppy fixed income markets
offset gains in FX
Short US dollar was the main source of gains, notably vs. EUR, AUD and CAD. Equities, with long positions in Emerging Markets (notably in China and India), were generally positive. A rebound of crude oil prices in the last week of July was also beneficial to the strategy. However, managers struggled in the developed market fixed income segment due to trendless and choppy market conditions. Emerging market local rates receivers generated profits though (notably in Brazil and Mexico). Shorts and hedges (in equity or credit) and a broad “long volatility” stance continued to detract from performance.
Rebound in July for most CTAs thanks
to gains from short USD
Most CTAs were positive in July as USD weakness and trends in equities continued while trading in other sectors proved to be mixed. In general, losses were registered in agricultural commodities and energies. In July, long positions in fixed income and short positions in energy were pared. Overall, CTAs remained long equities and increased exposure in short USD and long AUD while CAD switched from short to long.
Gains across the board on the back of
supportive equity markets
Long/short equity managers benefited from strong equity markets in the US and worldwide. Exposure to technology and energy drove performance, especially as the FAANGs and oil recovered in July. European markets, on the other hand, lagged – hurt by a strong performance of the euro currency - and recorded wide dispersion between sectors. Banks, Basic Resources and Insurance companies surprised the market positively while Travel & Leisure as well as media disappointed.
Special situation equities July’s
main performance driver
All sub-strategies were positive in July for Event Driven managers but special situation equities were the largest performance drivers for the month, on the back of a good earnings season, a strong market backdrop and a number of idiosyncratic events. Managers are seeing positive momentum in the strategy as testified by the increasing exposure to softer catalyst situations. As far as risk arbitrage is concerned, M&A continued to add to returns, albeit to a lesser extent among a relatively muted deal activity – with the volume of deals announced at approximately $220bn.
High yield names in the
energy sector rebound
Post-reorganisation names were among the main return drivers in July. Structured credit contributed positively with gains from CLO (equity and mezzanine tranches), CMBS (both conduit and single-asset, single-borrower) and legacy RMBS. The rebound in oil prices towards the end of the month boosted returns of energy-related high yield names. Positions in financials were also additive to performance while credit hedges slightly detracted.
Convertible arbitrage and equity-related
strategies add to returns
Within convertibles, gains came from volatile names in technology, telecommunications and consumer discretionary (e-commerce and autos). Within equity, managers benefited from generally positive equity markets and a good start of the earnings season with no major disappointments. Structured credit and fixed income arbitrage also had a positive impact on performance. Corporate credit-related strategies had a mixed contribution despite an environment characterized by tighter credit spreads. Lastly, portfolio hedges continued to weigh on returns.
Note: Returns are based on respective Eurekahedge index data estimates as at 31.07.2017 and can be subject to change
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