Challenges YTD For Active Managers Says GAM

From Global Asset Management


GAM logo 2016March concluded a volatile quarter across financial markets, as modest headline moves in many cases belied significant intra-quarter risk reversals and choppiness. The MSCI World index closed down 0.2% for the quarter against a very steep sell-off through 11 February, followed by a reversal and strong rally into the end of the quarter. The US dollar sold off strongly in February and March after being positive in January. Certain safe-haven bonds had a strong quarter, with the Barclays US Aggregate Bond index up 3.0% for the quarter on declining expectations of Fed rate hikes given a lack of broad, strong economic data.


Against this choppy market backdrop, the HFRX Global Hedge Fund index remains negative for the year, although it was up 1.2% for March. Anthony Lawler, portfolio manager at GAM noted “the volatility year-to-date has proved challenging for active managers who were generally hurt in January and February before recovering with some gains in March. Many had trimmed exposures in January and early February before the rebound and were unable to benefit in size from the subsequent rally. This type of environment leads to whipsawing of many active discretionary managers and can favour more systematic approaches.”


Macro and CTA funds delivered positive performance on the quarter following a solid start, as reflected by HFRX Macro/CTA index returns. Lawler commented “systematic trend followers benefited from long positions in fixed income and the US dollar and shorts in commodities and equities in January and into February. As markets reversed to a more risk-on tone, these traders responded by reducing risk in some of those trades, remaining long fixed income and shifting to long positions in equity indices. These moves mitigated losses in March and drove positive systematic performance for the quarter. Conversely, discretionary macro traders started the year poorly with most down in January and early February, before clawing back performance in March through some emerging market long exposures, long equities and rates trading and reducing or closing positioning in long inflation, short US duration, and long US dollar. “


The volatility in the quarter proved challenging for managers in the equity hedge and event driven space, said Lawler. “Crowded value and event trades were a source of pain as investors across the board trimmed exposures early in the quarter, regardless of the fundamental merits. This led to outsized losses in fundamentally researched equities and credit. However, this trend somewhat reversed in March as managers that had gradually re-engaged in their highest conviction trades were rewarded as performance in the month was a function of risk-taking levels and buyers returning to some of these over-sold names. These event and equity managers continue to like the long-term expected value in their holdings, but they face ongoing market technicals, or market selling, risk.”


  Monthly Performance Historical Performance
  Mar 2016 ROR Mar 2016
Index Value
YTD LAST 12M LAST 36M (ann) LAST 60M (ann)
HFRI Relative Value (Total) Index


10476.88 0.05% -2.03% 2.53%


HFRI RV: Multi-Strategy Index


7260.23 0.05% -1.29% 2.85%


HFRI Equity Hedge (Total) Index


17501.73 -1.66% -4.49% 2.59%


HFRI EH: Equity Market Neutral Index


5219.05 0.64% 3.31% 4.12%


HFRI Event-Driven (Total) Index


13424.31 -1.03% -6.25% 1.53%


HFRI ED: Activist Index


1112.98 -4.26% -6.51% 4.29%


HFRI ED: Credit Arbitrage Index


1320.96 -1.33% -7.00% 0.89%


HFRI Macro: Discretionary Thematic Index


1019.17 -0.76% -2.10% -0.96%


HFRI Macro: Systematic Diversified Index

-2.81% 11830.08 2.23% -4.79% 2.64%


HFRI Fund of Funds Composite Index


5522.44 -2.52% -5.11% 1.97%


© 2016 Hedge Fund Research, Inc. – All rights reserved. HFR®, HFRI®,

GAM continues to see market choppiness as a risk while select opportunities are available to investors, concluded Lawler: “The price path for equities over the quarter, where the market ultimately moved violently sideways, is very challenging for active traders. We expect the equity markets to continue to be challenging even though certain value plays look fundamentally attractive. We see opportunity in areas such as specific oversold equities in a few geographies; some credit sectors that look compelling in a low growth and stable default rate environment with supportive central banks; and in relative value trading in currencies and rates as currency battles could continue to drive trading opportunities.