July was a choppy month for equity markets and risk assets in general. The MSCI World index ended the month up 1.3%, but during the month the index reversed and changed direction on four occasions moving down or up more than 3% each time. Credit markets showed similar volatility but posted gains by month end. ABS and especially RMBS had a strong month as investors continued to reach for better yields than those available from the bonds of perceived safe sovereigns. Commodities had a strong month on the back of soybeans, wheat and corn rallying very steeply due to supply concerns caused by the US drought.
Hedge fund strategies performed positively in July with the HFRX Global Hedge Fund index up 0.5%. Trend following CTA hedge funds performed notably well with the Newedge Trend Sub-Index up 4.8% for the month.
Anthony Lawler, Portfolio Manager at GAM, said: “July was an encouraging month within which we saw individual managers in each main hedge fund strategy producing positive performance of several percentage points or more. It is particularly pleasing to see global macro have a solid month despite equity markets rallying, given that global macro managers remain cautious on global growth prospects.”
The hedge fund performance drivers for July were varied according to Lawler: “Performance in July came from numerous sources and from positioning across different themes, geographies and asset classes. Within credit and relative value, managers did well in ABS and long credit positions generally. Within global macro including CTAs, gains came from a variety of trades including longs in soft commodities, long global bonds, long US dollar, long Australian dollar and short the euro. It is encouraging to see the diversity of trades that drove performance as this indicates that this month was not simply a risk-on or risk-off month, but rather traders were in many cases rewarded for taking more nuanced directional views.”