Alternatives | July Commentary

August 24, 2018





U.S equities had a strong month, resulting in positive performance from long/short equity strategies. The majority of S&P 500 companies have reported earnings for Q2, with the growth rate in earnings per share at 24%, higher than the expected level of 20%. The percentage of companies beating both earnings and revenue estimates is at the highest level in several years. While some sectors key to long/short equity, such as information technology, lagged the broader market, all eleven sectors had positive returns for the first time since last November. 


Event driven was the only strategy with negative performance. A widely held technology transaction was derailed as China's Ministry of Commerce failed to approve the deal, ultimately leading to the transaction being cancelled. This created concerns that any deals needing Chinese approval could be pawns in the trade disagreement between the U.S. and China. However, overall deal activity is strong and deal spreads remain attractive. 


Credit focused relative value strategies had solid performance for the month, particularly those with exposure to high yield. High yield credit spreads tightened 25 basis points, more than offsetting the increase in U.S. Treasury yields. 


Discretionary macro strategies had strong returns from exposure to equities as well as high yield and emerging markets. Systematic macro strategies also benefited from the strong equity markets, but were negatively impacted by exposure to foreign currencies and commodities. Energy, precious metals and industrial metals all experienced material declines, resulting in only modest positive performance for systematic macro strategies. 

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