March was as much a liquidity crisis as it was a response to the economic impact (actual and presumed) of Covid-19, according to new research by bfinance’s Diversifying Strategies team, headed by Dr Toby Goodworth, into the performance of several core liquid alternative strategies.The report reveals that realised volatility topped 100 per cent for the first time since 2008, probably exacerbated by concurrent quarter-end expirations of options and futures on stocks and indices as well as challenging liquidity conditions.
Pure trend-following was one of the standout strategies in March. The HFRI Macro Systematic Diversified index posted gains of +2.9 per cent for the month, while the SG Trend index was up over 1.8 per cent.
The HFRI Equity Hedge index posted losses of -9.5 per cent in March. Yet the report notes a huge degree of dispersion in monthly returns, with losses of 20 per cent at one end of the spectrum and 20 per cent gains at the other.
While the HFRI Macro index gained 1 per cent in March, some well-known fixed income macro funds posted their best ever returns while other Global Macro managers reported losing more than half of their portfolio value.
The broad HFRI Relative Value index reported losses of -6.5 per cent in March, although several of the sub-strategy indices posted significantly deeper losses (Fixed Income RV down -8.4 per cent and the carry-focused Yield Alternative strategy down over 18 per cent for the month).
“Academic” ARP strategies, which exploit well-documented premia (eg value, carry, momentum) in market-neutral formats, lost 4.4 per cent on average.
bfinance says that it is unsurprising that the very diverse MultiAsset sector delivered negative performance in March. That being said, average losses were contained to the mid-to-high single digits and certain strategies delivered some impressive capital preservation.
