Insight
Aurum’s quarterly review – Q3 2021
In summary…
Risk assets advanced over the quarter, supported by the initial roll-out of COVID-19 vaccinations across much of the world and significant re-opening from most major economies. The debate as to whether inflation is transitory or more structural carries on.
Investing in managers with a trading mind-set allowed the portfolios to finish the quarter strongly and ensures that they are well-placed to navigate markets as the end of the year approaches.
Multi-strategy
Multi-strategy funds drove positive performance in most portfolios for the quarter. Equity market neutral trading teams generated solid performance trading through Q2 earnings season. Growth stocks outperformed value for much of the quarter, though managers were well-positioned for a reversal of that trend towards the end of the quarter. Commodity trading teams had a profitable quarter as trends in oil and natural gas added to returns. Elsewhere, merger arbitrage, index rebalancing, and credit relative value strategies also contributed to the strategy’s positive results.
Event driven
Event driven strategies were negative over the quarter. In merger arbitrage, a high-profile deal in the insurance sector broke at the beginning of the quarter, which caused a widening of spreads more broadly and detracted from returns. As the quarter went on, spreads improved and deals in the technology and pharmaceutical sectors partially offset earlier losses. Index rebalancing trading was additive, although gains were pared back following the factor rotation into value towards the end of the quarter. It was a tough quarter for special situation PM’s as short-term trading opportunities in China failed to materialise.
Macro
The third quarter was negative for macro strategies overall, although dispersion was high. The unwinding of the reflation trade continued to weigh on returns at the beginning of the quarter and was responsible for the majority of losses. As the quarter went on, investor sentiment on inflation gathered pace causing yields to rise, which was largely positive for discretionary macro managers. Positioning in precious metals detracted from returns as gold and silver prices fell over the quarter.
Systematic
Systematic strategies were largely positive. Commodity trading strategies had a particularly noteworthy quarter as oil and natural gas prices continued to advance strongly. In equities, short-term statistical arbitrage and machine learning strategies were positive as volatility trended up towards the end of the quarter.
Equity long/short
Aurum’s underlying equity long/short funds were positive over the quarter. US and Europe-focused funds were the primary drivers of returns with gains in industrial and technology sectors. Asian-focused funds were flat overall with gains in technology sectors offset by losses in industrials.
Conclusion
The end of the quarter was a reminder that stretched equity valuations and low interest rates can be painful for traditional portfolios when both equities and bonds sell off at the same time. The Aurum portfolios are designed to minimise beta to these asset classes and provide investors with a return stream that is complementary in such an environment. Investing in managers with a trading mind-set allowed the portfolios to finish the quarter strongly and ensures that they are well-placed to navigate markets as the end of the year approaches.
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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