Aurum’s quarterly review – Q3 2022
All of Aurum’s managed funds and bespoke accounts delivered positive returns in the third quarter of 2022. Performance for Aurum’s commingled fund of hedge funds $US classes ranged from +1.6% to +2.8% for the quarter. Aurum focuses on liquid, trading-style managers and strategies, with low beta to traditional assets, which has enabled the Aurum funds to perform well amidst the broad sell-off in bond and equity markets over the quarter. All strategies contributed positively to returns, with the exception of systematic and equity long/short, which had mixed impacts on different Aurum funds.
Multi-strategy funds contributed positively to all portfolios for the quarter. After a strong rally in equity and bond markets in July, both sold off sharply in August and September. Fundamental equity market neutral team strategies successfully traded through this period 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.
Macro funds continued to drive performance over the quarter, having taken a cautious approach in July as markets started to price in interest rate cuts in 2023. In August, the Fed reiterated that its priority remains to fight against inflation rather than supporting growth, thus supporting a number of macro themes that had been profitable for much of the year. The US dollar’s continuing strength was a noteworthy source of returns as were short rates and curve flattening positioning. Towards the end of the quarter, the new UK government’s unfunded fiscal package caused significant volatility with sterling falling sharply and Gilt yields increasing dramatically. This forced the Bank of England to take the unusual step of intervening to avoid a melt-down in the pensions space. While most managers had limited positioning, some were caught wrong-footed by the move, which detracted from performance. Elsewhere, shorting “big tech” stocks continued to add to returns as well as short Canadian banks.
Systematic strategies invested in by Aurum’s funds delivered mixed results over the quarter. Equity market neutral funds benefited from volatility in equity markets, particularly after the 21st September meeting of the Federal Reserve. Volatility strategies contributed positively to performance. A build up in storage volumes resulted in a huge fall in natural gas prices. When combined with oil prices losing ground as demand dampened, one of the commodity-focused funds Aurum invests in experienced moderate losses.
Event driven funds contributed to performance over the quarter. A merger between healthcare companies, widely held in merger arbitrage funds, received regulatory approval – which supported performance. Merger arbitrage spreads widened towards the end of the quarter, but managers have generally de-risked deals which are in advanced stages and have used volatility as an opportunity to add to positions. Elsewhere, index rebalancing was additive.
Equity long/short funds invested in by Aurum generally detracted marginally from performance in a highly volatile period for global equities. The rally in July was short-lived, Jerome Powell’s hawkish comments at the Jackson Hole Symposium caused most developed equity market indices to sell off significantly towards the end of August and into September. Against this backdrop, performance was encouraging with Japan-focused managers Aurum invests in were marginally positive overall, US/Europe-focused funds finished the quarter flat.
While there are signs of a slowdown of inflation, interest rates continue to rise and there are growing signs of an imminent global recession. This has caused significant headwinds for risk assets as well as fixed income. 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 to believe that Aurum’s bias towards trading-orientated managers should ensure the portfolios will continue to respond in a similar fashion as we approach the end of the year and into 2023.
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.