Aurum’s quarterly review – Q4 2021
Aurum believes that managers with a culture of risk management and trading ability should be best placed to navigate volatile markets in an increasingly uncertain world. Aurum remains attentive to a range of market and geopolitical risk factors and is encouraged by the current opportunity set for the year ahead.
Multi-strategy funds drove positive performance in most portfolios for the quarter. After a positive Q3 earnings season, fundamental equity market neutral trading teams successfully navigated shifting investor sentiment. Inflation concerns, hawkish Fed, and the onset of the Omicron variant all weighed on returns at certain points during the quarter. Commodity trading teams had a profitable quarter, despite volatility picking up sending energy prices tumbling in November as the contagiousness of Omicron `became increasingly apparent. Elsewhere, merger arbitrage, index rebalancing, and credit relative value strategies also contributed to the strategy’s positive results.
Event driven funds generally detracted from performance over the quarter. Deal breaks in the online gambling and cloud services sectors contributed to losses. November saw a shift in sentiment in various jurisdictions towards foreign takeovers. In the UK, the government announced tighter screening rules for foreign takeovers, while in the US, Big Tech critic, Jonathan Kanter, was appointed head of the US Department of Justice’s antitrust division. Elsewhere, tactical trading in IPOs and block trades detracted from returns.
Macro strategies’ performance was mixed, though most ended the quarter in positive territory. Short positioning in equities contributed to returns towards the end of the quarter as an increasingly hawkish tone from the Fed started to put pressure on the more speculative end of the market. This was despite headline indices reaching record highs. Fixed income relative value strategies detracted, while trading in rates and FX was largely positive.
Systematic strategies invested in by Aurum’s funds delivered positive performance. Equity market neutral strategies made gains from earnings momentum at the beginning of the quarter. Statistical arbitrage was a positive contributor, benefiting from Omicron-related market volatility in the middle of November. Systematic commodity strategies made the majority of profits from energy trading as power and gas prices continued to push higher. While index rebalancing strategies detracted from performance as the sell-off in technology towards the end of the quarter impacted positioning.
All equity long/short funds invested in by Aurum delivered positive performance. The two Japanese-focused managers Aurum invests in delivered positive returns, despite negative performance in Japanese equities following mixed corporate earnings reports and fear about contagion from the continuing Evergrande crisis earlier in the quarter. The more global-focused fund also had positive returns, benefiting in the early part of the month from supportive corporate earnings.
Aurum’s role is to identify hedge funds that protect capital and deliver a return stream that is not market-dependent or beta-driven. As the New Year begins, we are reminded of how quickly investor sentiment can change. Aurum believes that managers with a culture of risk management and trading ability should be best placed to navigate volatile markets in an increasingly uncertain world. Aurum remains attentive to a range of market and geopolitical risk factors and is encouraged by the current opportunity set for the year ahead.
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.