December was a volatile month across asset classes, with a sell-off in risky assets occurring mid-month before some losses were recovered by month-end, according to GAM.
The MSCI World index ended the month down 1.6%, while the Barclays Global Aggregate Bond index declined 0.7%. Credit, as measured by the iBoxx Liquid High Yield index, was down over 4% through mid-December, before rallying to end the month at -1.0%. This volatility across asset classes proved challenging for active managers. Hedge funds ended the month down 0.8%, as measured by the HFRX Global Hedge Fund index. Global macro was the only positively performing strategy on the month, up 0.2%, and up 5.1% for the past 12 months to end the year as the best-performing of the four main hedge fund strategies, as measured by the HFRX Macro/CTA index (all performance is in US dollar terms).
Macro investors see a continuing attractive opportunity set according to Anthony Lawler, portfolio manager at GAM. “December delivered an eighth consecutive month of positive performance for the global macro and CTA index, and we believe that the environment looks set to continue to be fruitful for this strategy.” he says. “The divergence of tightening US monetary policy bias versus loosening policy bias in Europe, Japan and even China may provide good trading opportunities in currencies and interest rates. We also see managers finding interesting relative value trades in equities, credit and other risk assets as economic data points and energy prices continue to support the view that US growth is reasonably strong and Europe is avoiding further deterioration. We expect 2015 to be productive for macro managers, but we continue to be watchful for possible geopolitical risks and policy reversals that could change these positive expectations.
“Aside from global macro and trend following managers, December was negative for hedge funds, concluding a choppy year in which the HFRX Global Hedge Fund index declined 0.6%. The moves in asset prices during 2014 have created trading opportunities for the coming year, says Lawler. “Active managers in equities struggled in 2014, with correlated price volatility and with exchange traded funds (ETF) flows driving index and large-cap outperformance versus portfolios of actively selected securities. These ETF flows push all index holdings together, regardless of individual equity quality, creating pricing inefficiencies and opportunities for fundamental investors. If 2015 delivers low but positive growth then we expect to see dispersion across individual equities and credits as investors look for long positions offering better value and exit more expensive or less attractive risk / reward names.”
Lawler concludes that GAM expects a positive environment across strategies, including event driven, in 2015. “Event driven strategies should have a rewarding year ahead given the level of cash on corporate balance sheets, highly available credit at low interest rates, and positive but low expected growth rates. We believe that these factors form an environment where balance sheet restructurings and deal volumes are likely to be high. Separately, we see the energy sector as a source of event opportunities and also risk, given the steep fall in oil prices. This fall in oil is putting pressure on producers with higher production or debt servicing costs. As such, this creates opportunity for new event investors and creates risk for investors already invested in associated companies.”
