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Seven-month hedge fund winning streak comes to an end in October

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A seven-month winning streak for hedge funds came to an end in October on the back of broader negative price moves, according to the latest figures released by GAM.

Both global equities and global fixed income markets were negative for October, with the MSCI World index declining 1.9 per cent and the Barclays Global Aggregate Bond index dropping 2.8 per cent.
The hedge fund space was not immune with the HFRX Global Hedge Fund index falling 0.6 per cent in October, reducing year-to-date performance to 0.8 per cent. Three of the four hedge fund strategies were negative, with relative value the outlier to avoid losses.
GAM portfolio manager Anthony Lawler (pictured) says: “October brought an end to the positive run of monthly hedge fund performance since March, but the index remains positive for the year. Managers across strategies are seeing increased volatility that could provide more interesting entry points for trades and increased security dispersion as interest rates rise. Credit spreads have widened, with credit ETFs in the US and Europe seeing meaningful outflows in the final week of the month. We are closely watching this for risks and opportunities that could come out of the asset class.”
The HFRX Macro/CTA index had a negative month losing 1.6 per cent. Lawler says: “The underlying constituents within the macro/CTA index showed significant differences in performance as discretionary macro managers were positive in aggregate whilst systematic strategies detracted. The significant sell-off in bonds, including the large move in UK gilts, proved rewarding for several discretionary macro managers. This same bond weakness was the main detractor for systematic managers who have until recently benefited from their long bonds positioning, given the strength of bonds this year prior to this reversal. Discretionary managers also benefited from specific positioning post-Brexit, including short British pound and short UK rates.”
Equity and event driven hedge funds were also slightly negative for the month with the HFRX Equity Hedge index down 0.8 per cent and the HFRX Event Driven index down 0.1 per cent.
Lawler says: “Investors are wary of near-term political risk in the US and Europe, with small reductions in risk levels common over the past few weeks. Although third-quarter earnings are generally beating expectations, the market is being tempered by downward revisions on earnings growth and political uncertainty around the potential for a Trump win and for European politics to dampen growth. In the event driven space, there was a notable spike in event activity, but spreads widened as fears began to surface that government regulators might block several pending transactions from closing, compounded by the upcoming election, which contributed to overall losses.”

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