Adam Moir
INSIGHT 28/01/2021

Aurum’s Quarterly Review – Q4 2020

Adam Moir Product Specialist

All of Aurum’s managed funds and bespoke accounts generated positive returns in the final quarter of 2020. Performance for Aurum’s commingled funds of funds $US classes ranged from +5.1% to +7.4% for Q4, to bring year to date returns from +11.2% to +16.4%.

Markets started the final quarter of 2020 with caution as rising COVID-19 cases in Europe weighed on risk assets while volatility picked up heading into the US election. However, Biden’s election victory and the results from vaccine trials by Pfizer, Moderna and Astra Zeneca buoyed investor sentiment and risk assets throughout the rest of the quarter. The conclusion to the UK/EU trade deal and US fiscal spending deal further overshadowed surging COVID-19 cases in Europe and the US in December.

All of Aurum’s underlying hedge fund strategies were positive for the quarter, with multi-strategy funds leading the way. Fundamental equity market neutral platforms concluded a very successful year with a strong last quarter as they seamlessly navigated the momentum to value factor rotation, catalysed by the very encouraging results of the vaccine clinical trials.

Sector diversification is a key characteristic of the fundamental equity platforms at multi-strategy funds in the Aurum portfolios. Over the quarter, Industrials, Consumer Discretionary and Healthcare teams were notable performers. Elsewhere, SPACs, merger arbitrage, index rebalancing, commodity and fixed income relative value strategies also contributed to the strategy’s positive results.

Q4 2020 was a strong quarter for macro strategies as the risk-on environment presented a number of opportunities. Traditional macro strategies benefited from long equity index, short US dollar, long sterling and short fixed income positions in the US as the prospect of a Biden administration added to inflation concerns. Funds with an emerging market bias captured the large moves in EM currencies vs US dollar, while in commodities, long energy and long base metal positions added to gains.

Event driven strategies also had a strong quarter, generating returns from a number of idiosyncratic opportunities. Positioning in SPACs has continued to be profitable as this increasingly popular way for private companies to go public continues to provide a number of attractive exit opportunities. Elsewhere, two merger deals in Germany progressed as the quarter went on, while index rebalancing trading was also profitable despite the large factor rotation impacting positioning.

Systematic strategies had another strong quarter with statistical arbitrage and short-term futures strategies delivering notable results. Systematic options strategies also performed well following the big retracement of volatility resulting from the US election and promising vaccine announcements.

Aurum’s underlying equity long/short funds were positive over the quarter, having successfully managed the momentum and growth factor rotation into value. Gains were driven by long consumer cyclical and financial sectors in Europe and the US, while Asia-focused managers generated strong returns towards the end of the quarter from positioning in the technology sector.

Aurum’s role is to identify hedge funds that protect capital and deliver a return stream that is not market-dependent or beta-driven. Ensuring portfolios have a market neutral bias helped protect capital during the first quarter of 2020 and provided a solid base to be able to capitalise on a number of opportunities thereafter. Investing with managers that have a variable net bias and can take some directionality, allowed the portfolios to finish the year strongly and capture part of the rally in risk assets as investor sentiment turned positive. Blending these two types of managers is central to Aurum’s portfolio construction and we continue to scout for managers that exhibit both of these traits.

2020 will undoubtedly be remembered for decades to come and one must not forget the tragic human loss associated with the environment we still find ourselves in. While the roll-out of the vaccine is underway, Aurum remains attentive to the uncertainty in markets that remains and believes its multi-manager portfolios are well-positioned to successfully navigate the beginning of 2021 and beyond.