Aurum’s quarterly review – Q2 2022
Multi-strategy funds contributed positively to all portfolios for the quarter. Fundamental equity market neutral team strategies successfully traded around Q1 earnings season and also generally seemed to navigate the ongoing factor rotations between growth and value. Quant, macro, energy trading and fixed income relative value were generally additive, while event and index rebalancing strategies generally detracted from returns.
Macro funds continued to drive performance over the quarter, with a number of themes contributing. Long US dollar positioning was additive, as global growth concerns weighed on investor sentiment. As inflation continued to climb, the prospect of more aggressive rate rises became clearer. This provided a healthy backdrop for short rates and curve flattening positioning, which were also strong contributors. In equities, short equity positioning contributed to returns as developed equity markets incurred significant losses. Shorting “big tech” stocks has been an alternate way that some managers have expressed expectations about further monetary policy tightening. And finally, gains were also made in energy as oil and natural gas prices rose significantly over the quarter.
Systematic strategies invested in by Aurum’s funds detracted from performance overall, however there was significant dispersion amongst underlying funds. Shorter-term stat arb strategies continued to benefit from the elevated levels of market volatility and stock dispersion, while market neutral factor investing worked well for longer-term models. The largest detractor was from index rebalancing strategies, with managers hurt by positions associated with the Russell 2000 and MSCI World Index rebalances in May. Systematic commodity strategies made moderate gains, as commodities broadly sold off in June in response to concerns on global growth.
Event driven funds generally detracted from performance over the quarter. Persistent volatility in equity markets impacted previously announced deals and created a challenging environment for index rebalancing strategies. Merger arbitrage spreads widened caused largely by negative news in some specific transactions as well as certain regulatory interventions. It has also been a challenging environment for tactical trading strategies as 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. Value outperformed for much of the quarter as higher-than-expected inflation stoked fears that the US Federal Reserve will taper faster than initially anticipated. When combined with the general risk-off sentiment, this created a challenging trading environment for funds. The Japan-focused managers Aurum invests in fared marginally better than the Europe/US-focused.
The harsh reality of inflation, rising interest rates and signs of an increasingly de-globalised world have caused significant headwinds for risk assets as well as fixed income. This is something that many have been warning about for a long time, so it is encouraging that the Aurum portfolios have so far not only protected capital, but also seized on the various opportunities presented so far in 2022. Given that uncertainty persists, we continue believe that Aurum’s bias towards trading-orientated managers should ensure the portfolios will continue to respond in a similar fashion for the rest of the year and beyond.
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