Insight

Aurum’s quarterly review – Q1 2023
In summary…
Performance for Aurum’s commingled fund of hedge funds’ $US classes ranged from marginally negative to -2.4% for Q1. While Aurum’s portfolios delivered positive performance in January and February, the negative performance in March, triggered by stress in the banking industry, outweighed the positive returns from earlier in the quarter. The losses in March were driven predominantly from macro, systematic, and event driven strategies, highlighting the challenges faced over the month.
Despite this, Aurum’s focus on finding managers with a strong culture of risk management ensured that the portfolios avoided some of the larger, well-publicised losses experienced by some funds.
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.
Disclaimer
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.