Sat, Aug 15, 2020
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Active strategies rebound in Q2 2020

Wednesday, July 29, 2020
Opalesque Industry Update - Active investment managers across a variety of asset classes and investment universes rebounded from Q1 losses in Q2 2020. As global markets bounced back, many strategies racked up returns not seen in years despite an economic environment still full of more questions than answers due to the COVID-19 pandemic, said eVestment.

The average of all active traditional equity strategies was +21.2% in Q2 2020 and -8.1% YTD. The story of Q2 was about the snap back of returns after the largest average losses produced by traditional equity strategies in over 20 years, since at least Q1 2000.

Active US equity strategies produced their largest quarter of positive returns in over 20 years, with average gains over 23%. The rise comes after their largest losses in Q1 (see chart below) and puts average returns of all active US equity strategies in H1 2020 at around -7%.

Growth once again dominated value by again by margins not seen in two decades, which was the case across all major regions. In terms of benchmark outperformance, however, within large cap and all cap segments in the US, it is actually value strategies which are outperforming their benchmarks compared to growth (the difference in small cap is negligible).

The average return generated from all active, non-cash fixed income strategies globally in Q2 was +7.5% in USD terms, which puts the average YTD 2020 return at +1.1%. Strategies focused on CLO markets were among the best performing in Q2, along with US convertibles and Canadian long duration strategies.

Equity strategies: Historic differences continue in growth over value

The average of all active traditional equity strategies was +21.2% in Q2 2020 and -8.1% YTD. The story of Q2 was about the snap back of returns after the largest average losses produced by traditional equity strategies in over 20 years, since at least Q1 2000. As a result, the majority of products outperformed their benchmarks in Q2 2020. In EAFE and ACWI ex-US Equity, outperformance YTD was more common, while global and global EM equity strategies have had a more difficult time outperforming their benchmarks. US equity strategies' outperformance hovers around 50/50 YTD.

Active US equity strategies produced their largest quarter of positive returns in over 20 years, with average gains over 23%. The rise comes after their largest losses in Q1 (see chart below, left) and puts average returns of all active US equity strategies in H1 2020 at around -7%. The drivers of active US equity performance in Q2 were small cap and growth exposures, while growth strategies across all capitalizations, though primary all cap and large cap, are producing the best YTD returns. For a second consecutive quarter, growth has outperformed value by a margin unmatched in the prior 20 years.

The growth vs. value story is not US-centric, and is even magnified in other regional markets. Within active global, EAFE, global EM and ACWI ex-US equity strategies, the median growth strategy's outperformance of value in Q2 was even wider than Q1 2020, with global EM producing the biggest divergence.

In terms of the drivers of benchmark outperformance, however, it is interesting that within large cap and all cap segments in the US, it is actually value strategies which are outperforming their benchmarks compared to growth (the difference in small cap is negligible). The implication being that the growth vs. value story while simply based on returns is in favor of growth, value managers appear to be adding more value.

The dispersion of returns (% point difference between top and bottom decile performers) remained very wide across all broad regional segmentations, illustrating just how much deviation there has been within equity markets, globally, as economies and companies grapple with operating within a global pandemic. The dispersion from within global EM equity strategies was significantly larger than in Q1 2020. Interestingly, global EM strategies were the only major regional segmentation where there is greater dispersions in returns in rebounding markets vs. falling markets.

Fixed income: High yield and securitized strategies lag

The average return generated from all active, non-cash fixed income strategies globally in Q2 was +7.5% in USD terms, which puts the average YTD 2020 return at +1.1%. Strategies focused on CLO markets were among the best performing in Q2, along with US convertibles and Canadian long duration strategies.

Within US fixed income strategies, while the dispersion of returns were still elevated, though well down from Q2 2020, the average return was behind only the post-financial crisis rebounds in Q2 and Q2 2009 indicating positive performance was relatively widespread in the quarter. Positive returns in the quarter were primarily from within convertibles, CLO, though both are among those with the largest average YTD losses.

Within active global fixed income strategies, the story was similar to US-focused strategies both for the quarter and H1 2020; high yield and securitized strategies rebounded most in Q2, but still are among the worst performing fixed income categories for the year. The difference between high yield and core strategies' median return was significant in Q1, behind only Q4 2008 as the widest in over 20 years, but as high yield rebounded, core strategy returns did as well making the gap between the two in Q2 in favor of HY wide, but not significantly so.

Canadian fixed income markets have produced some of the widest differentials of returns relative to their last 20 years of any major regional segmentation, with the differences in Q2 2020 surpassing even what was seen during the global financial crisis and European sovereign crisis, driven by the returns from long duration and mortgage strategies. While both were positive in Q2, long duration strategies produced an average gain over 12% in Q2.

Article source - Opalesque is not responsible for the content of external internet sites

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. PE/VC: How private equity co-investments can accelerate investor returns following a crisis, Pandemic slowed private equity fund closings in first half, Private-equity giants inking more deals in Asia[more]

    How private equity co-investments can accelerate investor returns following a crisis Investing in a post-crisis period is never simple. The atmosphere of opportunity compels investors to put capital to work. However, where and how to best invest becomes more important than ever. P

  2. Investing: Viking Global slashes exposure to hot tech stocks, Warren Buffett may have bought back a record $7bn of Berkshire Hathaway stock in the past 3 months[more]

    Viking Global slashes exposure to hot tech stocks From Institutional Investor: Viking Global Investors in the second quarter sharply cut back on positions in at least three of the market's hottest tech and internet stocks, according to a regulatory filing made public late Friday afterno

  3. PE/VC: Private equity firms bet on insurance, Private equity sees late July mini-boom as funds gear up for 'new normal'[more]

    Private equity firms bet on insurance From Institutional Investor: Major publicly traded private equity firms' assets under management are growing, largely thanks to investments in insurance companies. A new analysis from PitchBook of five major private equity firms' second-quar

  4. Private real estate fundraising plummets 28% with 58 funds closed in Q2 2020[more]

    Laxman Pai, Opalesque Asia: The number of private real estate funds reaching a final close has plummeted so far this year. Just 58 private real estate funds reached a final close in Q2 2020, down 28% from 81 funds closed in Q1 2020 and 47% from Q2 2019 (110), said a report by Preqin. That said

  5. Opalesque Exclusive: Katch secures guaranteed income through private debt to SMEs[more]

    B. G., Opalesque Geneva: Short-term lending to SMEs can be a good alternative to traditional fixed income, provided the risks are well under control. One fund that does just that is the Katch Global Lending Opportunitie