Hedge fund performance mixed but overall positive in May, says GAM
Major global indices stood still in May as equity and bonds markets proved largely directionless. The MSCI World index returned less than 1 per cent, while the Barclays US Aggregate Bond index was flat for the month.
Outside of equities and bonds, there were strong rallies in oil and the US dollar, while precious metals sold off. After a weaker start to the month for equities, markets reacted positively mid-month to rally into month-end, prompted by a perceived increased probability of near-term rates rises in the US and a lower probability of Brexit. Some of those more positive risk sentiments have weakened in the first trading days of June.
In the hedge fund space, performance was mixed but overall positive, with the HFRX Global Hedge Fund index up 0.5 per cent for May. According to GAM portfolio manager Anthony Lawler (pictured): “Hedge fund strategies eked out positive performances in May, but with some dispersion of returns. Event driven traders benefited the most from supportive equity pricing, while macro and systematic trend traders were mixed given the reversal of many medium-term trends, such as in the US dollar.”
The event driven strategy led performance for May, with the HFRX Event Driven index up 2.7 per cent. Lawler says: "Rising equity and bond prices with lower volatility allowed corporate management teams to refocus on creating shareholder value, and there was an uptick in corporate announcements during the month. However, even with these tailwinds, event driven investors remained defensively positioned, operating with reduced risk levels given recent redemptions and drawdowns.”
Global macro and systematic strategies had a mixed month, but negative overall. Discretionary macro performed positively, but trend sold off, leaving the HFRX Macro/CTA index down 1.8 per cent for May. Lawler says: “The year-to-date trend of US dollar weakness reversed in May, with the US dollar index up over 3 per cent. This dollar strength, the reversals in precious metal prices and the continued rise in the oil complex were the key themes in May. These moves proved generally beneficial for discretionary macro managers, but challenging for trend-focused managers.”
In the equity space, managers were broadly able to benefit from the market rally. “US and European markets were marginally positive, with cyclical-orientated managers the largest beneficiaries.” In relative value trading, credit continued to outperform, says Lawler: “Higher-yielding assets remain attractive and managers in the credit space continue to benefit from capped longer-term rate rise expectations as economic growth is anticipated to be modest but positive.”
Lawler concluded that investors and traders remain conservatively positioned across the board.
“Political event risk, an active central bank calendar, and typical seasonal economic weakness heading into the summer period of lower market liquidity mean that managers are less willing to take outsized risk. In this market, we would expect managers who trade more tactically and exit trades quickly to be more successful at capturing gains, while protecting capital. In parallel to these tactical traders, managers with longer-term views, who can take illiquidity and volatility risk, are likely to see continued opportunities in credit.”