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August: A quiet month for markets and hedge fund strategies alike

Wednesday, September 07, 2016
Opalesque Industry Update - August was characterized by muted volumes and volatility across most asset classes. The MSCI World index gained 0.1%, while the Barclays US Aggregate Bond Index declined by 0.1%. GAM portfolio manager Anthony Lawler commented: “There were no meaningful catalysts to lead markets, and this, combined with typically low seasonal volumes, meant performance and volatility in major asset classes were subdued. August highlights included gains in the energy space following rumours of an upcoming oil production freeze, while US equities reached record highs mid-month and corporate credit continued to rally. However, most markets were broadly unmoved by the data releases and news reports in August.”

Hedge funds generated small, positive returns, with the HFRX Global Hedge Fund index gaining 0.2% for the month. Lawler commented: “The headline hedge fund index eked out a small gain and continues its winning streak, now positive for each of the past six months. However, the strategy level indices generated mixed performance, with event driven traders the main beneficiaries of ongoing market stability, while the HFRX Macro/CTA Index was a notable detractor as several trends stalled and reversed.”

The HFRX Macro/CTA Index lost 1.0% for the month. Lawler noted: “Systematic strategies posted negative performance due to modest price reversals in widely held positions. Notable reversals included fixed income as rates rose following year-to-date moves lower in yields, the currency market as the US dollar strengthened, and also commodities with crude rallying and precious metals falling.”

The HFRX Event Driven index gained 1.3% for the month. Lawler noted: “Event driven strategies continued to provide positive returns as supportive equity and credit market conditions remain in place. Event driven trades across equities and distressed credit have recovered well after the challenges of crowded positions last year and in January 2016.”

The low trading volumes and subdued volatility levels in August have carried into the first days of September. However, Lawler said that he expects markets to now focus on catalysts and growth expectations. “As we come out of the seasonally quiet summer months, we see investors raising risk levels and looking ahead to catalysts, including scheduled economic data releases, a busy central bank calendar in September and upcoming elections in Europe and the US.”

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