Adam Moir
INSIGHT 28/10/2021

Aurum’s quarterly review – Q3 2021

Adam Moir Product Specialist

All of Aurum’s managed funds and bespoke accounts delivered positive returns in the third quarter of 2021. Performance for Aurum’s commingled funds of hedge funds $US classes ranged from 0.03% to +2.6% for Q3.

Investing in managers with a trading mind-set allowed the portfolios to finish the quarter strongly and ensures that they are well-placed to navigate markets as the end of the year approaches.

Multi-strategy

Multi-strategy funds drove positive performance in most portfolios for the quarter. Equity market neutral trading teams generated solid performance trading through Q2 earnings season. Growth stocks outperformed value for much of the quarter, though managers were well-positioned for a reversal of that trend towards the end of the quarter. Commodity trading teams had a profitable quarter as trends in oil and natural gas added to returns. Elsewhere, merger arbitrage, index rebalancing, and credit relative value strategies also contributed to the strategy’s positive results.

Event driven

Event driven strategies were negative over the quarter. In merger arbitrage, a high-profile deal in the insurance sector broke at the beginning of the quarter, which caused a widening of spreads more broadly and detracted from returns. As the quarter went on, spreads improved and deals in the technology and pharmaceutical sectors partially offset earlier losses. Index rebalancing trading was additive, although gains were pared back following the factor rotation into value towards the end of the quarter. It was a tough quarter for special situation PM’s as short-term trading opportunities in China failed to materialise.

Macro

The third quarter was negative for macro strategies overall, although dispersion was high. The unwinding of the reflation trade continued to weigh on returns at the beginning of the quarter and was responsible for the majority of losses. As the quarter went on, investor sentiment on inflation gathered pace causing yields to rise, which was largely positive for discretionary macro managers. Positioning in precious metals detracted from returns as gold and silver prices fell over the quarter.

Systematic

Systematic strategies were largely positive. Commodity trading strategies had a particularly noteworthy quarter as oil and natural gas prices continued to advance strongly. In equities, short-term statistical arbitrage and machine learning strategies were positive as volatility trended up towards the end of the quarter.

Equity long/short

Aurum’s underlying equity long/short funds were positive over the quarter. US and Europe-focused funds were the primary drivers of returns with gains in industrial and technology sectors. Asian-focused funds were flat overall with gains in technology sectors offset by losses in industrials.

Conclusion

The end of the quarter was a reminder that stretched equity valuations and low interest rates can be painful for traditional portfolios when both equities and bonds sell off at the same time. The Aurum portfolios are designed to minimise beta to these asset classes and provide investors with a return stream that is complementary in such an environment. Investing in managers with a trading mind-set allowed the portfolios to finish the quarter strongly and ensures that they are well-placed to navigate markets as the end of the year approaches.