16 JUL.

2019

Rendimiento absoluto

You'll never walk alone

Central banks are back in town. After May’s market sell-off, the gatekeepers of monetary policy reassured investors that they would stand by them. Weakening growth perspectives and weak inflation prints pushed central bankers to issue dovish comments and plans to potentially restart monetary easing programmes to counterbalance the negative impact of world trade disruption. 

Markets continue to react very strongly to short-term news. After dipping in May, equity indices reacted positively in June to supportive monetary measures, bouncing back up to mid-to-high single-digit returns. Argentinian equities were again the positive outlier, returning +23% over the month. The return of Cristina Fernández de Kirchner to the country’s presidency is a possibility that seems to be losing steam. At sector level, cyclicals outperformed telecoms, staples and utilities.

Sovereign rates eased across the major economic regions. In the US, short-to-mid-term yields decreased by around 20 bps, with the 10-year Treasuries touching 2%, coming from 2.5% at the end of the 1st quarter. Investors expect the Fed to cut rates before the end of the year. In the Eurozone, mid-to-long-term maturity yields rallied on the back end of the curve, specifically for periphery countries like Portugal. Argentinian rates followed equities, with 2- and 3-year maturities easing 300 bps.

The month was strong for precious metals, with palladium gaining 15%, platinum increasing +5.20% and gold rising +8%. Coal is not trendy. This commodity value declined     -15%.  

The HFRX Global Hedge Fund EUR was up +1.19% during the month.

Long short equity

It was a strong month overall for long short equity strategies. During the year, market direction has been the most important factor behind managers’ performance. Net long stock-pickers outperformed market-neutral strategies. Low net funds found it more difficult to be positive during the month, due to strong sector rotations and heavy short stock covering. Average gross exposures have slightly increased recently but average net exposures remain significantly below last year’s highs. The current environment is not easy, due to economic uncertainty and rapid sentiment changes. However, strong dislocations always create opportunities for either long or short investments. This strategy offers a wide range of levers that can be used to benefit from industry restructurings and sector dispersion, from a long or short perspective.

Global Macro

During the month of June, there were strong asset trends which were beneficial to both discretionary and systematic strategies. The latter made money from their long equity and bond positions, benefiting mainly from medium-to-long-term models. In this environment, we would tend to favour discretionary opportunistic managers that can take some risk off the table and stay on the sidelines when asset prices are heavily dislocated. Nevertheless, these managers can use their analytical skill and experience to generate profits from a few strong opportunities worldwide. 

Quant strategies

June was a positive month for quant strategies overall. CTAs had a good month, thanks to strong trends in both developed market bonds and equities. Results were more mixed in commodities: metals generated positive results, while the energy and agriculture sectors incurred losses. Stat Arb returns were generally negative, the first month of negative performance since the beginning of the year. The momentum factor was down the most, while the Value factor was best (and also the only positive one). 

Fixed Income Arbitrage

The strategy is still benefiting from a much better opportunity set than last year in the US (the widening of the basis in the US has doubled compared to last year), as well as opportunities in Europe such as France and Italy. The new LRTO programme as well as the dovish tone from the Fed is likely to sustain ongoing swap spread widening and create dislocations. On the short end of the curve, the YTD tightening of the OIS libor basis has benefited some funds. It is important to highlight that funding and access to repos is one of the pillars of the strategy and that access to bank balance sheets has become more challenging. Since the beginning of the year, all managers in this space have delivered strong risk-adjusted returns, while being positively exposed to volatility. 

Emerging markets

In a world where G7 yield curves are less attractive than ever, Emerging market debt is benefiting from renewed interest, especially Latin America. Despite a positive backdrop, volatility should remain high and evolve from month to month. Hence, many of the managers we track seem to be more focused on idiosyncratic investments that are more immune to the deglobalization rhetoric. Again, discretionary managers have tended to outperform systematic strategies since the beginning of the year. Long Brazilian rates seem to be the only consensual and crowded trade among EM managers. 

Risk arbitrage - Event-driven

June was a month of two tales for event-driven strategies. Special situation buckets were, on average, positive, benefiting from the market tailwind. On the other hand, surprisingly, pure merger arbitrage strategies were performance detractors in a strong market environment, due to spreads widening. Roche’s offer for Spark Therapeutics and the Celgene / Bristol Myers Squib deal were among the biggest detractors. This is a setback for managers in the short term. However, it lays the ground for an interesting second semester. According to the managers that we cover, merger arbitrage deal spreads are wider, allowing capital to be put to work at more interesting risk returns than last year. Some of the reasons behind these wider spreads are the unpredictability of the FTC merger requirements. This is somehow a surprise for many arbitrageurs, since they were expecting less regulatory intervention in a Republican-led agency. Another element to highlight is that technology and healthcare companies continue to announce very big deals, with spreads that arbitrage strategies are taking longer to close. Managers are, on average, optimistic about the outlook for Risk Arbitrage due to a supportive business environment with benign financing conditions and the willingness of corporate management teams to fight for sources of business growth.

Distressed

We still believe that we are in the late stages of the credit cycle. 2019’s risk-on environment has reversed most of the spread-widenings seen in Q4 2018. Distressed and stressed strategies are currently tending to overweight their portfolios with hard-catalyst investment opportunities that are diminishing the negative impact of beta. Managers are raising cash levels for dry powder with which to reload the portfolio with the new issues hitting the distressed market. We are closely monitoring distressed managers, due to the potential of high expected returns, but remain broadly on the sidelines. 

Long short credit & High Yield

Despite some more volatility, spreads are still heading in the same direction, supported by the chase for yield. Hence, we remain underweight, as there is limited-to-no comfort in being short the credit market, where there is strong demand and the negative cost of carry is quite expensive.