A great deal of dispersion among Macro managers in February
Global Macro managers broadly reduced their net long stance in US equities throughout the month, while long exposure to China equities continued to be a source of gains. In FX, long British pound trades performed well on the back of hopes of a delay in Brexit enforcement. Positions in European financial corporate credit and peripheral sovereign bonds (notably Greece) contributed positively, as did long crude oil trades for some managers. On the negative side, interest rates receivers in Europe detracted from performance, along with long rates and FX positions in Brazil. Latam credit generally underperformed, and some managers also incurred losses from short US dollar positioning.
Managers capitalise on the equity market rally
Most systematic trading funds profited from the ongoing recovery in equity markets benefitting from upward trends in major indices. Strong downward trends across selected commodity markets added to gains, particularly in agriculture. The energy complex continued to be a drag as many players held onto short positions despite upward price action. FX trading proved to be somewhat challenging as the USD experienced sharp reversals against selected EM markets. Long positioning in fixed income instruments finished in the red following comments made by the Fed late in the month indicating that the central bank was planning to reduce its holdings to complete its balance sheet normalisation.
Improving alpha as markets stabilize
The equity market continued its rally in February albeit at a softer pace than in January. Progress on US-China trade talks, more market friendly central banks, Chinese stimulus measures and the US government shutdown resolution all participated in increasing investor confidence. Cyclical sectors (Energy, Tech, Industrials) and smaller capitalisations that had suffered the most in Q4-18 are recovering strongly this year. Managers who had avoided derisking last year have been top performers, while those with defensive positioning have been slower in recapturing alpha. The earnings season has been better than expected, however weaker forward earnings should offer more opportunities on the short side in the near future.
The rally rumbles on for Event Driven managers
Event driven managers broadly generated returns with all sub-strategies ending the month in positive territory. Corporate activity as well as managers’ exposure increased alongside improving investor confidence. M&A activity remained robust, driven by private equity buyers, while spreads tightened slightly during the month benefitting risk arbitrageurs. On the distressed securities side, corporate credit managers benefitted from a number of idiosyncratic situations including the late-January bankruptcy filing of a gas and power company in Canada and the restructuring of another energy company. Postreorg equity situations performed well thanks to broader equity market strength, while exposure to Puerto Rico muni bonds and structured credit were other notable drivers of returns.
Managers continue to deliver positive results
Relative Value funds’ performance was positive across sub-strategies, with equity special situations and convertible arbitrage driving returns. Altaba/Alibaba was a core situation that benefitted a number of managers. Fixed income arbitrage positions benefitted from strong credit markets. A high level of dispersion in equity markets benefitted market neutral portfolios. Equity dual listed arbitrage strategies detracted slightly, down from January’s strong performance. Statistical arbitrage strategies performed well in February, with Europe outperforming other geographies.
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