Harvesting alpha: Brummer Multi-Strategy CEO Mikael Spångberg strikes optimistic tone after hedge fund soars

Harvest

Brummer Multi-Strategy CEO Mikael Spångberg says the fund is in a “good position” to deliver continued positive performance, after it posted its second-best annual performance to date – but he underlined the importance of generating alpha in the face of unpredictable markets.

Spångberg, who is portfolio manager of Stockholm-based Brummer & Partners' long-running fund, said 2020 had been an “extraordinary” year for markets, and “quite a fantastic year” for BMS in terms of performance and returns.

The multi-strategy hedge fund manager, which this year celebrates its 25th anniversary, saw its flagship BMS vehicle rise 12.6 per cent in 2020, its second-best annual performance since launch.

In a video commentary released on Thursday, Spångberg said the double-digit advance was achieved amid ongoing market volatility, and underlined the quality of its portfolio construction. While benchmark volatility was around 29 per cent, the BMS volatility was 6.6 per cent.

“We had a pretty good Sharpe ratio,” he observed.

BMS successfully navigated the initial market ruptures in February and March at the outset of the coronavirus crisis, before capitalising on short-term opportunities during the third and fourth quarters.

“The key for us was to have a portfolio which was market neutral-ish in most dimensions, where the underlying positions were much more exposed to what we call idiosyncratic risk, rather than market risk, or market risk factors,” he explained.

He said alpha very much dominated the strategy’s total return throughout 2020, while market risk – “the beta part”, comprising equities, commodities, fixed income and FX – contributed around zero per cent to the total net return of the fund.

From an absolute return perspective, BMS’s equity long/short, fixed income and macro strategies all performed strongly, he added.

Manticore and Black-and-White – two long/short equity hedge fund strategies in the BMS fund – were both up more than 35 per cent for the year, while discretionary macro fund Arete added 11.6 per cent over the 12-month period.

“The correlations were very low, which is a key part in explaining the high degree of alpha on a BMS level.”

Looking ahead, Spångberg is optimistic about the strategy’s ability to deliver in accordance with its investment objective, though he sounded a note of caution regarding potential problems that may pose challenges for financial markets.

“The balance between monetary and fiscal policy needs to be there,” he observed.

“In this environment, where we think the level of market risk returns will be fairly low, you need to really focus on trying to harvest alpha in various ways ie picking winners and losers, whether that’s on a macro level, or equity level, or single stock level.”

He added: “We are opportunistic and we think we are in a good position to keep delivering performance although it will be most likely an uncertain and volatile world, and one should always be humble.”