ALTERNATIVES | February Commentary

March 21, 2018

 

 

After a record 15 months of positive returns, the S&P 500 finally posted a  negative return during the month of February. Equity markets across the globe were down 3% to 5%, resulting in long/short equity being one of the weaker strategies for the month.The U.S. jobs report highlighted faster than expected growth in wages, which if it persists, would likely lead to more aggressive rate hikes by the Fed. The announcement of steel and aluminum tariffs late in the month also weighed on the markets.


In addition to poor equity results in February, other asset classes reversed as well, creating additional headwinds. The U.S. dollar rallied and commodities, particularly energy and metals, sold off.

Positive news regarding the merger of one of the most widely held technology
names enabled event driven strategies to post flat performance for the month,
despite the sizable pullback in the equity markets. While the number of announced merger and acquisition transactions declined, deal spreads were at the most attractive level since April of 2017.


Relative value strategies posted modest negative performance despite the
continued rise in interest rates. The yield on the U.S. 10 year note increased 15 basis points, bringing the YTD increase to 47 basis points, leading credit oriented managers to slight negative performance for the month. However, equity volatility increased more than 40%, enabling convertible arbitrage to produce slight positive returns.


Macro strategies had the weakest performance, as is typically the case when there is a significant reversal of performance such as what occurred with equities during the month. The asset class reversals impacted systematic managers the most, as these managers benefit from persistent trends.

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