July saw positive performance across the majority of asset classes as markets rebounded after the Brexit turmoil. The MSCI World Index returned 4.3 per cent whilst the Barclays US Aggregate Bond Index returned 0.6 per cent, pushing both indices up over 5 per cent year-to-date.
GAM portfolio manager Anthony Lawler (pictured) says: “Asset classes and investment managers generally performed well in July in the broad rally prompted by market expectations of another wave of easy monetary policy. The US dollar and commodities were the notable exceptions as they sold off over the month. Compared to the immediate post-Brexit risk aversion, investors became more comfortable that even with weak economic growth, the near term likelihood of a deep recession is limited, given that central banks remain highly responsive to any signs of economic weakness and macro shocks.”
Against this backdrop of strong performance across most asset classes, hedge funds had a positive month with the HFRX Global Hedge Fund Index up 1.5 per cent. Lawler says: “The HFRX Global Hedge Fund Index is now up year-to-date, with July being the strongest month and the fifth consecutive positive month. The four main hedge fund strategies each eked out gains in July and we are seeing traders show greater willingness to add risk. In aggregate net and gross leverage increased.”
Event driven and equity hedge strategies enjoyed a strong month supported by equity and credit market rallies. The HFRX Event Driven Index was up 2.4 per cent and the HFRX Equity Hedge Index was up 2.0 per cent.
Lawler says: “Event driven traders have performed well after a tough January and 2015. In aggregate opportunities have been rewarding but with some notable merger spread exceptions, such as two healthcare deals now being opposed by the US Justice Department, and the AB InBev transaction with SABMiller seeing a change in terms after the Brexit currency moves. Within equity hedged trading, we have seen gross and net exposure increase with investor general appetite and specific demand for cyclical stocks outside of energy.”
Though July brought positive performance across asset classes and hedge fund strategies, more testing times are to be expected, says Lawler. “Ongoing asset price rises, when combined with current low global growth expectations, together skew the potential range of near-term market price moves to the downside. Much of the rationale for the rally has been expectation of further easy monetary policy rather than robust growth or improving margins. August is a historically tricky month with low market volumes. In addition, several political risks and policy decisions loom large. We remain focused on trades and investment styles that should benefit from micro dislocations and can benefit in an environment of capped global growth expectations. This leads us to remain focused more on systematic strategies and active credit strategies.”
