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

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

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

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

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.

Equity long/short

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.

Conclusion

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.