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Brummer multi-strategy hedge fund stays positive amid hefty fixed income losses

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Brummer & Partners’ flagship multi-strategy hedge fund vehicle ended last month in marginally positive territory, as solid gains made by its systematic trend-following managers were set against hefty losses in its fixed income relative value exposures, which were hit by short-term interest rate surges in Sweden.

The Brummer Multi-Strategy (BMS) fund made a 0.2 per cent gain in its SEK and USD classes during October, but it remains down 0.3 per cent over the 10-month period since the start of January. The twice leveraged BMS 2xL version gained 0.3 per cent last month, but year-to-date it also is languishing in negative territory to the tune of -1.3 per cent.

Trend-following manager Florin Court led the way with a 5.1 per cent monthly return, which was driven by lower moves in bond prices as well as gains in commodities. Lynx, another managed futures name, gained 1.2 per cent, making money in bond moves but losing out from long-dollar bets. Florin Court has now soared more than 29 per cent since the start of 2021, with Lynx up 2.6 per cent.

On the downside, fixed income relative value fund Frost collapsed 17.7 per cent last month – its worst monthly showing since inception. The hefty loss – which leaves the strategy down 17.5 per cent year-to-date – stemmed mainly from the recent surge in short-term Swedish interest rates and flattening of the yield curve, Brummer said on Tuesday.

“In Sweden, there is now a significant divergence between the Riksbank’s communicated trajectory for short term interest rates and what the market is pricing in,” the long-running Swedish hedge fund pioneer noted in an update.

Elsewhere, Manticore, a long/short equity fund, added 1.1 per cent as a result of positive alpha around the earnings season, as did Kersley, a financials-focused long/short equity manager, which was up 0.1 per cent. Manticore has gained 2.8 per cent year-to-date, with Kersley up 0.5 per cent.

Elsewhere, discretionary macro manager Arete has generated 8 per cent over the last 10 months, having risen 1 per cent in October primarily on the back of successful stock market positioning. 

Quant equity fund AlphaCrest dipped 2.7 per cent last month, and is down 0.7 per cent for the year, while Lynx Constellation, a machine-learning strategy, lost 1.6 per cent in October, and has now plummeted more than 18 per cent year-to-date. Pantechnicon, a long/short equity strategy recently added to the BMS vehicle, was flat in October.

“The fact that BMS finished the month in positive territory is a testament to the strength of the diversification in BMS’s portfolio,” Brummer said of the overall October performance. “Frost has reduced risk significantly to adjust the portfolio to the current market conditions. Frost’s negative contribution to BMS’s return is however limited since the allocation to Frost has been kept low.”

As of November 1, BMS’s portfolio managers primarily increased the allocation to Kersley and Florin Court. The portfolio managers also redeemed from its 1.2 per cent allocation to Lynx Constellation and instead increased the allocation to Lynx main programme. In total, the allocation to Lynx was increased on the margin, the Stockholm-based firm added.

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