Key Takeaways
- • Hedge funds gained 0.7 per cent in May 2013 and are up 4.6 per cent year-to-date, as measured by the HFRX Global Hedge Fund index.
- • Equity hedge, event-driven and relative value strategies posted positive May results, while global macro and trend-following managers had mixed performance after strong market reversals in the second half of May.
- • Long fixed income positions and long exposures to markets that reversed, including energy, Japanese equities and soft commodities, were the main sources of losses, according to GAM portfolio manager Anthony Lawler.
- • The Barclays Global Aggregate Bond index fell 3.0 per cent in April and 3.7 per cent year-to-date, raising concern over the traditional balanced portfolio.
- • Lawler argues the US Treasury sell-off may be a one-time move rather than the start of a sustained rise in rates, driven partly by mortgage investors hedging their books.
Summary
Hedge funds were up 0.7 per cent in May and 4.6 per cent year-to-date, according to the HFRX Global Hedge Fund index, as reported by Hedgeweek. The gains came against a choppy market backdrop, with the index rising in the period as strategies diverged.
Anthony Lawler, portfolio manager at GAM, said equity hedge, event-driven and relative value strategies performed positively in May. Results were mixed for global macro and trend-following managers, which were affected by strong reversals in numerous markets in the second half of the month. Across strategies, losing trades included long fixed income positions and long exposures to markets that reversed or were choppy, including energy, Japanese equities and soft commodities. Profitable trades included well-managed US and European equity exposures, long US dollar positions against several currencies, continued short Japanese yen positioning, a short Australian dollar position and long interest rate volatility positions.
Lawler noted that bond markets were a source of concern. The Barclays Global Aggregate Bond index fell 3.0 per cent in April and 3.7 per cent for the year, undermining the yield and capital protection investors expect from bond allocations in traditional and balanced portfolios. He described the volatility and weakness in perceived safe-haven government debt as a new dynamic that has raised concerns among investors.
The cause of the US Treasury weakness in May remains debated. Commentators have largely attributed it to shifting market expectations for the timing of Federal Reserve QE tapering. Lawler also cited increased bond market volatility and large mortgage investors selling Treasuries to hedge their books. If the latter factors dominate, he said, the move could prove to be a one-time adjustment in Treasury yields rather than the beginning of a sustained rise in rates. He concluded that time will tell which cause is more dominant, but May has rattled investors with large bond portfolios.
Anthony Lawler, portfolio manager at GAM, said equity hedge, event-driven and relative value strategies performed positively in May. Results were mixed for global macro and trend-following managers, which were affected by strong reversals in numerous markets in the second half of the month. Across strategies, losing trades included long fixed income positions and long exposures to markets that reversed or were choppy, including energy, Japanese equities and soft commodities. Profitable trades included well-managed US and European equity exposures, long US dollar positions against several currencies, continued short Japanese yen positioning, a short Australian dollar position and long interest rate volatility positions.
Lawler noted that bond markets were a source of concern. The Barclays Global Aggregate Bond index fell 3.0 per cent in April and 3.7 per cent for the year, undermining the yield and capital protection investors expect from bond allocations in traditional and balanced portfolios. He described the volatility and weakness in perceived safe-haven government debt as a new dynamic that has raised concerns among investors.
The cause of the US Treasury weakness in May remains debated. Commentators have largely attributed it to shifting market expectations for the timing of Federal Reserve QE tapering. Lawler also cited increased bond market volatility and large mortgage investors selling Treasuries to hedge their books. If the latter factors dominate, he said, the move could prove to be a one-time adjustment in Treasury yields rather than the beginning of a sustained rise in rates. He concluded that time will tell which cause is more dominant, but May has rattled investors with large bond portfolios.
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