Hedge Fund Flash Report

July performance drivers

Global Macro

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.

CTAs

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.

Long/Short Equity

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.    

Event Driven

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.

Distressed

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.

Relative Value

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.

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July 2017

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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