Aurum’s quarterly review – Q1 2022

Multi-strategy

Multi-strategy funds contributed positively to all portfolios for the quarter. Russia’s invasion of Ukraine in February caused a global economic shock. Equity market volatility was elevated and commodity prices soared, notably oil, gas and wheat, which exacerbated rising inflation levels. Consequently, macro and commodities trading strategies drove positive returns for multi-strategy funds. Fundamental equities and quant stat arb strategies were also positive amidst higher equity market volatility during the quarter. Tech and consumer equity positioning, index event strategies and SPACs detracted from returns.

Macro

Macro funds drove positive performance in most portfolios for the quarter. Russia’s invasion of Ukraine and the resurgence of COVID-19 in parts of China led to dislocations in commodity, equity and fixed income markets. This created a fertile trading environment for macro funds. Positive performance was predominantly from trades around the inflation theme – short fixed income positioning, curve flattening and long energy positions – which contributed to positive performance throughout the quarter. Precious metals trading was another positive contributor, as investors sought safe haven assets after the Russian invasion of Ukraine.

Systematic

Systematic strategies invested in by Aurum’s funds delivered generally positive performance. Elevated equity market volatility with large intra-day performance swings was an abundant trading environment for most stat arb and equity market neutral funds. One fund notably underperformed, its losses were driven by stat arb positions in the US and commodity positions. More generally, systematic commodity strategies generally performed well, making the majority of profits from energy trading in highly volatile markets, as power and gas prices continued to push higher as the war in Ukraine progressed.

Event driven

Event driven funds generally detracted from performance. Volatility in equity markets throughout the quarter impacted spreads in previously announced events. Appetite for new deal activity was generally robust, particularly at quarter-end, despite the febrile macroeconomic climate. A large deal in the semiconductor sector closed and was a positive contributor to performance. A large deal in the cyber security industry detracted from performance after intervention from regulators. Elsewhere, block trades and positions in software names detracted from returns.

Equity long/short

Equity long/short funds invested in by Aurum generally detracted from performance in a highly volatile period for global equities. A general theme across the quarter was the factor rotation from growth to value in US equities, sparked by indications that the US Federal Reserve will taper faster than initially anticipated. When combined with risk-off sentiment in markets after the Russian invasion of Ukraine, this created a challenging trading environment for funds. Japan-focused managers Aurum invests in fared marginally better than the Europe/US-focused, until the end of the quarter when global asset flows switched, moving away from Asia towards the US.

Conclusion

Aurum’s role is to identify hedge funds that protect capital and deliver a return stream that is not market-dependent or beta-driven. The first quarter of this year saw a febrile geopolitical climate that gave rise to highly volatile markets. The Aurum portfolios’ positive performance during the period demonstrates the value of Aurum’s investment philosophy, and the culture of risk management and strong trading abilities of underlying funds.