August performance drivers
FX drives returns as the greenback retracts
FX was the major source of profits for most Global Macro managers, notably thanks to long positions in EUR and RMB, while gold also contributed to returns. On the negative side, Euro bonds payer positions were a source of losses as the 10-year generic German bund yield declined 18bps over the month. Emerging market-focused managers outperformed once again, with longs in EM equities (in China), credit (in Latam) and FX (in EMEA) driving performance. A short stance towards South Korea (Kospi index, KRW) also added to the gains.
Market environment favours
Most CTAs posted strong returns amid a more favourable environment for trend-followers. Positive contributions to performance came from across the board. Long fixed income instruments in Bund and Eurodollar futures and short positions in corn, soybeans and coffee within the commodity complex were the main drivers of performance. In addition to that, some gains were also registered in energies and metals. Long exposure to equities got reduced on the back of increased volatility with more risk in the US vs. Europe. Finally, short USD positions vs. EUR and EM FX registered gains during the month.
Positive month despite relatively
As concerns about North Korea abated, markets recovered in the second half of the month but dispersion among sectors was wide. Technology and utilities led the way and energy, financials and telecom lagged. Regarding the FAANGs their upward trend was muted in August. Growth and momentum continued to advance against value and small caps. The euro peak at 1.20 a few days before the end of the month impacted negatively European exporters. Against this backdrop, all Long/short equity regions fared well. Global and US managers took the lead with the major winners registering the bulk of their gains in technology and healthcare.
M&A wave slows down while activist situations
add to returns
Performance was mixed for Event driven managers in August. M&A books were flat to negative as spreads remained under pressure especially in the US and deal activity was muted. Moreover, only a few deals closed in the month, such as Mobileye/Intel, with marginal impact on managers’ P&L. In special situations, results varied due to the choppy market environment. Some small cap names detracted, while most activist situations (but Nestlé) held up well. Meanwhile, activism in Europe is rising with an increasing number of activist campaigns being announced.
Corporate credit weighs on performance
Distressed managers suffered losses on corporate credit in August, especially in telecom, retail and energy given the poor performance of those sectors. Major post-reorganization equities situations, mainly commodity-related, also detracted. Meanwhile, no major news was expected on the litigation plays front, therefore Icelandic banks, Lehman and Caesars made no meaningful contributions to returns. Structured credit continued to do well and emerging market situations on average rallied after a difficult month of July (e.g. Venezuela, PVDSA, Gol Airlines).
Muted returns on the back of mixed performances
Within fixed income strategies, Long/short credit portfolios detracted with losses across the telecom and energy sectors. In the rates space, technical relative value positions between curves and instruments continued to perform well, but trades with short US interest rate components detracted. Structured credit positions contributed positively with gains across non-agency RMBS, CMBS and CLOs.Volatility arbitrage and convertible arbitrage strategies reported small positive returns as volatility picked up amid rising concerns over North Korea. Equity-related strategies also contributed positively despite choppy equity market conditions.
Note: Returns are based on respective HFRI index data estimates as at 31.08.2017 and can be subject to change
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