Aurum’s quarterly review – Q1 2023

Macro

The majority of macro funds that Aurum invests in were negative over the quarter. While January yielded positive contributions to performance, driven by trades on the China-reopening theme and cooling inflation in Europe and the US, February saw allocations to macro funds detract from returns. Losses in February resulted from long positions in commodity futures, the Canadian dollar, and precious metals, although fixed income short positions were able to offset some of these losses.

However, the most significant impact on performance occurred in March, as most macro funds delivered negative results. A notable factor was the prevalence of net short rates positioning in the front-end of the US curve, reflecting the expectation of continued interest rate increases from the Federal Reserve due to high core inflation and stronger-than-anticipated economic data in the US. The failure of Silicon Valley Bank (“SVB”) caused sharp revisions of interest rate policy expectations, with the two-year US Treasury yield recording is biggest one-day drop since 1987.

While gains from tactical FX trading tempered some of the losses, the overall volatility prompted funds to significantly reduce risk.

Multi-strategy

The contribution to performance by Aurum’s multi-strategy funds over the quarter was mixed. Most delivered positive returns in January and February, with equity trading, fixed income, and arbitrage strategies being additive. However, quant strategies detracted from January’s performance, while equity trading and macro allocations detracted from February’s performance. In March, the impact on performance was mixed, with some funds moderately positive and funds with a larger allocation to macro strategies generally underperforming.

Systematic

Aurum’s systematic strategies had positive overall performance during the first quarter. In January and February, systematic strategies were positive contributors to performance, with stat arb funds performing strongly due to dispersion in equity performance and higher volatility in equity markets, respectively. A systematic commodity fund also benefited from a decline in energy prices.

However, in March, systematic strategies detracted from performance, with one fund notably underperforming. Shorter-term models tended to perform better than longer-term models, and quant macro allocations in some systematic multi-strategy funds detracted from returns.

Event driven

Aurum’s event-driven funds had negative overall performance over the quarter driven by a variety of factors. In January, the strategy detracted from performance due to regulatory hurdles in the gaming industry and a deal break in the international shipping sector. New deal activity was also muted, with deal spreads slightly tighter than the previous month.

However, in February, event driven funds were largely positive. Managers were able to exit positions with minimal impact on fund performance, and deal spreads tightened even in deals facing potential regulatory risks.

In March, event driven funds had a slight negative impact on performance. The UK’s CMA expressed concerns about a deal in the health tech sector, and shares in a telecoms company and a renewable energy company declined. Merger arbitrage spreads also widened in the first half of the month, impacted by wider market volatility.

Equity long/short

The Aurum funds with an allocation to equity long/short strategies had limited impact to performance. Gains made by Europe/US-focused were largely offset by losses by their Japan-focused counterparts. in January due to receding inflationary pressures and a rally in global equities. In February, these strategies detracted slightly from performance due to renewed fears about US inflation resulting in risk-off sentiment in US equity markets. In March, performance was mixed with negative attribution primarily coming from financials exposure.

Conclusion

Despite the challenges faced by investment managers during the first quarter of 2023, Aurum remains committed to identifying and evaluating skilled managers with robust risk management capabilities and the ability to generate returns across a range of investment strategies and different market environments, Aurum is well-positioned to navigate market volatility and deliver positive returns for the year ahead.