Insight
Aurum’s quarterly review – Q4 2022
In summary…
All of Aurum’s managed funds and bespoke accounts delivered positive returns in the fourth quarter of 2022. Performance for Aurum’s commingled fund of hedge funds $US classes ranged from +0.9% to +2.2% for Q4, bringing performance to +6.6% to +11.5% for the year.
Most strategies contributed positively to Aurum fund performance, with allocations to macro and multi-strategy funds performing particularly well, while equity long/short marginally detracted in some portfolios. Aurum’s focus on managers and strategies with a trading mind-set enabled the funds and portfolios to finish 2022 positively in a period of heightened volatility in bonds and equities and during one of the worst years on record for traditional 60/40 portfolios. The performance in Q4 was marked by strong positive returns in December and more mixed returns in October and November.
Macro
The majority of macro funds that Aurum invests in were positive over the quarter, though returns were more muted in comparison to earlier in the year. This was largely due to managers reducing risk levels and crystallizing gains in core trading themes as the outlook for central bank policy became less clear. The Bank of England’s cessation of its bond purchase program in mid-October created relative value trading opportunities while, after a strong run, the weakening of the US dollar detracted from performance in some funds.
Throughout the quarter, macro funds had varied impact on different Aurum funds, with wide dispersion between funds. Long developed market bond positioning, which had been added to during the peak-inflation period, supported performance as yields contracted in November.
Towards the end of the year, short duration positioning in Europe drove positive performance as messaging from the ECB made investors anticipate further rate hikes. Short equity positioning, part of the inflation theme expressed by several underlying funds, was also accretive to returns amidst a drawdown in global equities.
Multi-strategy
Aurum’s multi-strategy funds had positive overall performance during the quarter. Relative value macro strategies and event-driven allocations were positive contributors at the beginning of the quarter, while directional macro and quantitative strategies detracted.
As the quarter progressed, equity strategies detracted due to significant momentum reversal and subsequent deleveraging. Some strategies such as statistical arbitrage, fixed income, and volatility contributed positively while others such as macro had mixed impact on performance.
In the final month of the quarter, most of the funds posted positive returns, driven by macro, fixed income, quantitative and volatility strategies.
Systematic
Aurum’s systematic strategies had positive overall performance during the fourth quarter. Despite some challenges in the early part of the quarter, such as significant reversals in asset classes and widespread investor de-risking, equity market neutral funds benefited from volatile global equities.
Throughout the quarter, systematic strategies contributed positively, with dispersion amongst underlying funds. Equity market neutral funds were positively impacted by volatility in equity markets, volatility strategies also contributed positively, and statistical arbitrage focused funds had mixed impacts. Additionally, energy price volatility created a challenging environment for certain systematic commodity funds. Despite these challenges, systematic strategies were positive contributors to performance overall.
Event driven
Aurum’s event-driven funds had positive overall performance over the quarter driven by a variety of factors. Despite turbulence in equity markets, and notable deals closed in various industries, including Elon Musk’s acquisition of Twitter at the originally announced price of $44bn. Elsewhere, mergers in software, tobacco, telecommunications and gaming industries helped to drive positive performance. An unexpected deal-break in the materials industry detracted slightly from returns.
Overall deal activity was fairly buoyant and regulatory hurdles were overcome which helped to push funds towards a positive performance. Index rebalancing strategies were also additive as the MSCI indices rebalance also created trading opportunities.
Equity long/short
Equity long/short funds invested in by Aurum had mixed impact across different funds with Japan-focused managers consistently outperforming their Europe/US-focused counterparts. Long positioning and positive investor sentiment helped drive performance during the early part of the quarter, though esoteric factors impacting single stock alpha detracted from performance.
In November, performance was buoyed by more positive investor sentiment, boosted by a two-day rally following lower-than-expected US inflation readings. Funds that entered the month positioned for more bearish markets had to pivot quickly to sectors with more upside.
Things reversed towards the end of the year as volatility in global equity markets, caused by revisions to the Fed’s rate hike projections, led to investor concerns of an impending recession. Japan-focused managers continued to outperform Europe/US-focused counterparts. Long positions in US consumer names detracted from performance.
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. 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 are encouraged by the current opportunity set for the year ahead.
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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