Insight
Aurum’s quarterly review – Q2 2023
In summary…
Performance for Aurum’s commingled fund of hedge funds $US classes ranged from -0.9% to +0.2% in the second quarter of 2023. The outlook at the beginning of the quarter was largely focused on the uncertainty surrounding the US debt ceiling negotiations and ongoing considerations focused on the direction of interest rates and inflation.
Towards the end of the quarter there was a strong rebound in risk assets as markets returned to an uneasy calm with the VIX dropping to 13 by the end of June. Multi-strategy, systematic, and equity strategies contributed to positive performance, while macro and event-driven strategies underperformed.
Multi-strategy
The contribution to performance by Aurum’s multi-strategy funds was positive overall. The primary drivers of positive returns were allocations to fixed income, equity trading, and commodity trading.
April saw robust performance, with most underlying funds generating positive returns, though funds with large allocations to equity statistical arbitrage and macro strategies underperformed.
Towards the end of the quarter, equity trading continued to perform well, though the final week of June was particularly challenging from an alpha perspective. In a turnaround, statistical arbitrage allocations outperformed, while fixed income, quantitative strategies, and commodity trading allocations continued to contribute positively.
Macro
It was another challenging quarter for macro, which detracted from performance overall. Reacting to the bond market volatility experienced in March, funds came into the quarter with significantly reduced risk levels having cut directional bond exposure considerably. Long positions in industrial and precious metals also detracted from returns, while unexpected OPEC+ production cuts challenged net short oil positioning.
Towards the end of the quarter US curve steepening positions detracted as the curve continued to invert further, while short JGBs and short equity positioning also detracted from performance. Losses were tempered somewhat by gains in euro rates positioning. Additionally, short US dollar and long energy positioning contributed to returns.
Systematic
Aurum’s systematic strategies had positive overall performance during the second quarter with high dispersion between managers. Statistical arbitrage strategies faced challenges due to low volatility and trading volumes, further complicated by irregular price volatility during the earnings season. Energy trading strategies also detracted, while machine learning and systematic futures strategies contributed positively to the performance.
Event driven
Aurum’s event driven funds had negative overall performance, reflecting the profound impact of regulatory interventions and market volatility on deal activity. The quarter began negatively as an unexpected UK anti-trust intervention in a video game company takeover represented a notable setback.
In May, managers experienced further challenges, with performance being negatively impacted by a high-profile regulatory intervention by the US Federal Trade Commission in a pharmaceutical takeover, based on concerns about “rampant consolidation” in the industry. Merger spreads duly widened and equity volatility ticked up.
However, June was positive as merger spreads narrowed, recovering somewhat from the prior month’s disruption in the pharmaceutical industry. Deal activity in the biotech, pharmaceuticals and commodities sectors contributed to returns.
Equity long/short
The Aurum funds with an allocation to equity long/short strategies contributed positively to performance. The quarter began with a modest underperformance in April, driven largely by negative returns from European and US-focused funds. However, their Japan-focused counterparts demonstrated resilient performance, partially offsetting the impact. Momentum pivoted favourably in May with robust returns from Europe and the US, accompanied by continued steady performance from the Japan-focused managers. The positive trend culminated in June, largely attributed to the buoyant global equity markets.
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.
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