October was a pretty quiet month. 5 out of our 7 managers contributed positively. Our Global Marco Value and our Trading manger were in a negative territory making a negative contribution of -0.74%. The October news flow was dominated by two topics: the resurgence of Covid-19 in Europe, and the upcoming US elections. Markets spent much of the month in wait-and-see mode before the announcement of widespread restrictions across Europe in the final days of the month tipped the balance of risks to the downside.
September Performance: +0.27% (net)
YTD Performance: +9.34% (net)
Winning Months (%): 73.5
Annualized Standard Deviation: 4.29%
Sharpe Ratio: 2.25
Maximum Drawdown: -2.21% (September, 2020)
Correlation vs. S&P 500 TR: -0.07
Correlation vs SMI: -0.22
Monthly Commentary (as per October 31, 2020)
Systematic Trading: The underperformance of our Trading manager was mainly a result of overlay strategies that have been traded on the SP500 and 30Y Treasury during the last week in October. While trading the recovery strategy the manager kept nearly a 100% S&P exposure from 26th to 28th October. The S&P 500 lost significantly and therefore the strategy contributed negatively to the overall performance. Later that week the manager traded a treasury seasonality strategy and lost an additional -1.71% on two trading days. The balanced component of the portfolio contributed also negatively over the whole month. Going into November, the manager was able to make profits again.
Global Macro Value: For our Global Marco Manager October was a volatile month with the fund going up (an intra-month peak of +2.5%) and, in spite of hedging up more then, down again in the last week of the month when it lost 3% odd, to a -0.9%, net at month end. Doing the damage were equities, particularly European dividend swaps and financials, that lost as the unexpectedly severe 2nd wave in the continent worsened. Hedges mitigated these hits (+1.5%), meaning equities in total lost just over 1% in the month, accompanied by small losses in commodities (due to European carbon-credits, mitigated by gains in US gas futures) and FX (largely the Euro). Small gains in credit (long long-end Italy) and rates (long-end payers in the US) rounded it up.
Our other Managers (Multi-Assets, Long/Short Equity and Arbitrage, Global Fixed Income & FX) were positive on the month.
Global Fixed Income & FX: October particularly provided good opportunities in both fixed income and foreign exchange. In the early part of the month, the US fixed income market broke to the downside on increased volume. The manager’s momentum and breakout families were able to profit from this downdraft. In the second half of the month, currencies had significant one or two day moves that were positive for the manager. The Yen rallied strongly during the third week and the Euro sold off sharply in the final week. The manager’s machine learning and momentum captured those moves profitably. November US election has finally come and gone and as of this writing, the Presidency is still undecided. It seems, however, the House and Senate majorities will remain the same; ensuring a divided government. The equity markets are rallying strongly on this news but many uncertainties remain as we navigate the outcome of the presidential election and look ahead to tackling the pandemic and economic issues.
Multi-Assets, Long Short Equity & Arbitrage: Our Multi-Asset Managers made a positive contribution due to broadly diversified investments. Our Long/Short Equity and Arbitrage Manager was positive as well. Drastically increasing Covid-19 cases around the globe combined with US election speculation resulted in volatile markets during the month. The manager benefited from this, generating positive returns within its core long/short intraday trading strategy.
Given the unprecedented global challenges to market conditions in 2020 and beyond we believe that Diversification is now paramount more than ever. Late stage market dynamics tend to generate a great deal of volatility and can cause bouts of strong correlations between equities and bonds. An allocation into Alternative Investments that exhibit lower volatility and an uncorrelated, asymmetric return profile to risk assets such as equities is therefore a viable investment strategy for now and beyond.
For latest factsheet go to Investment Solutions, Alternative Investments, RML Global Alternative Smart Alpha AMC.