Adam Moir
INSIGHT 27/10/2020

Aurum’s Quarterly Review – Q3 2020

Adam Moir Product Specialist

Aurum’s discretionary portfolios enjoyed another strong quarter. Performance for Q3 2020 ranged from +2.7% to +4.2%, to bring year to date returns from +5.6% to +9.1%.

Q3 saw positive developments in a number of COVID-19 vaccination trials, cooling of US-China trade tensions, and Jerome Powell’s announcement of a more flexible approach to the Federal Reserve’s inflation targeting at the annual Jackson Hole symposium. This supported risk-on sentiment for most of the summer until renewed concerns about rising COVID-19 cases saw sentiment shift early in September. Markets quickly fell back, while volatility ticked up sharply and by the end of the quarter, many countries had re-implemented certain social distancing measures.

All underlying hedge fund strategies were positive for the quarter, with Aurum’s underlying multi-strategy funds leading the way. Fundamental equity market neutral platforms benefitted from high levels of stock dispersion, which provided PMs with a fertile opportunity-set. Technology, Healthcare and Industrials teams were the strongest performers and it was encouraging to see gains held through September; high-quality risk management, idea velocity and diversification are all key characteristics of the fundamental equity platforms at multi-strategy funds in the Aurum portfolios. Elsewhere, merger arbitrage, volatility arbitrage, commodities and fixed income relative value strategies also contributed.

Following a sharp rebound in Q2, systematic strategies had another strong quarter as the elevated level of volatility supported a both statistical arbitrage and short term futures strategies. Aurum’s focus on investing in esoteric systematic strategies helped buck negative trends when compared to more traditional systematic strategies, which typically struggled in September.

Macro strategy performance was positive. Directional macro strategies benefited from long equity index, short dollar, long euro and convergence between core and periphery bond positioning early on in the quarter, however, gains were pared in September. Curve steepening positions in the US and the UK were profitable in August. In commodities, long silver positioning added to gains as the metal rose sharply (+60% QTD at peak) in August before giving half of these gains back by the end of the quarter. Funds with an emerging market bias underperformed as risk off sentiment towards the end of the quarter weighed on returns.

Event driven strategies had a strong quarter, generating returns from a number of idiosyncratic opportunities. This was particularly notable in September when markets had struggled more widely. Positioning in SPACs has been profitable for Aurum’s underlying event driven strategies, many of which were trading at a discount of up to 7% in March. While these discounts have mostly been realised since, the increasingly popularity as a way for private companies to go public has provided a number of attractive exit opportunities. Elsewhere, a number of merger deals in Europe overcame significant hurdles and neared completion, while index rebalancing trading was also profitable.

Aurum’s underlying equity long/short funds were positive over the quarter, including September having successfully managed the momentum and growth factor rotation into value. Gains were driven from long consumer cyclical and technology sectors, while Asia-focused managers successfully navigated the surprise resignation of Japanese Prime Minister, Shinzo Abe.

Aurum’s portfolio construction continues to play an important role in generating consistent returns for our clients. September was a reminder of how quickly investor sentiment can change – and ensuring portfolios have a market neutral or a variable bias, helped protect capital during that period, while diversification across strategies added to returns. With the US election on the horizon, Aurum believes its discretionary portfolios are well-positioned to successfully navigate the end of 2020 and beyond.