From Global Asset Management
Managers weather the challenging last two weeks of the month
In general, hedge fund managers began January broadly expecting the successful themes of the previous quarter to remain prevalent, according to Anthony Lawler, portfolio manager at GAM. Specifically, these themes included Japan reflation; strength in developed market equities led by US growth; a continued positive event driven environment; and rising US interest rates. However, these themes failed to perform in January given the broad risk-off environment with the MSCI World index closing down 3.7% in US dollar terms. Hedge funds ended the month with slightly negative performance, down 0.3%, as measured by the HFRX Global Hedge Fund index in US dollar terms.
“Many managers weathered the first three weeks of January well,” said Lawler, with the HFRX Global Hedge Fund index still in positive month-to-date performance territory on 23 January. “However, across most strategies the last two weeks of the month and the first few trading days of February were challenging. Investors globally looked to take risk off their books by selling some of their holdings in the themes that were successful in 2013. The leading detractors included the strong yen and the weak Nikkei, which hurt many global macro managers, and weakness in developed market equities, which hurt equity hedged managers and event driven managers by month-end. Conversely, the one trade that weathered January well was long developed market credit and bonds, as investors largely chose to not sell these positions.”
When asked about how hedge fund managers are adjusting their positioning given the significant moves across markets year-to-date, Lawler said: “Initially in January most managers across strategies kept their conviction positions on their books, expecting the emerging market wobbles to be contained. When the de-risking and sell-offs spread by month-end, it resulted in managers reassessing and broadly de-risking their books to some degree. What we have not seen yet, which could happen, is managers capitulate and reverse their positioning if they come to believe that we face new structural challenges to growth and sentiment. By and large, managers have communicated that they continue to see good opportunities in the themes that hurt performance in January, and as such – so far at least – they have not changed their views on growth and policy expectations for 2014.”