Aurum’s quarterly review – Q1 2022
All of Aurum’s managed funds and bespoke accounts delivered positive returns in the first quarter of 2022. Performance for Aurum’s commingled fund of hedge funds $US classes ranged from +2.8% to +3.7% for the quarter.
Investing in managers with a trading mind-set and liquid underlying portfolios allowed the Aurum funds to deliver strong positive performance in a highly volatile quarter for markets.
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 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 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 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 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.
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.
This Post represents the views of the author and their own economic research and analysis. These views do not necessarily reflect the views of Aurum Fund Management Ltd.. This Post does not constitute an offer to sell or a solicitation of an offer to buy or an endorsement of any interest in an Aurum Fund or any other fund, or an endorsement for any particular trade, trading strategy or market. This Post is directed at persons having professional experience in matters relating to investments in unregulated collective investment schemes, and should only be used by such persons or investment professionals. Hedge Funds may employ trading methods which risk substantial or complete loss of any amounts invested. The value of your investment and the income you get may go down as well as up. Any performance figures quoted refer to the past and past performance is not a guarantee of future performance or a reliable indicator of future results. Returns may also increase or decrease as a result of currency fluctuations. An investment such as those described in this Post should be regarded as speculative and should not be used as a complete investment programme. This Post is for informational purposes only and not to be relied upon as investment, legal, tax, or financial advice. Whilst the information contained in this Post (including any expression of opinion or forecast) has been obtained from, or is based on, sources believed by Aurum to be reliable, it is not guaranteed as to its accuracy or completeness. This Post is current only at the date it was first published and may no longer be true or complete when viewed by the reader. This Post is provided without obligation on the part of Aurum and its associated companies and on the understanding that any persons who acting upon it or changes their investment position in reliance on it does so entirely at their own risk. In no event will Aurum or any of its associated companies be liable to any person for any direct, indirect, special or consequential damages arising out of any use or reliance on this Post, even if Aurum is expressly advised of the possibility or likelihood of such damages.