Alternatives | June Commentary

July 23, 2019

 

The U.S. Federal Reserve moved further into an accommodative stance at the June meeting, with 8 of 17 voting members indicating one or more interest rate cuts would be needed in 2019. On the trade front, presidents Trump and Xi agreed to meet at the G20 gathering with the expectation that they would be able to get negotiations restarted. The combination of these factors led to a strong equity market, with the S&P 500 rising +7.05%, and all sectors having positive returns. On this strength, long/ short equity was the best performing strategy.

 

Event driven strategies had solid performance as well, although not as strong as long/short equity given the less risky profile of merger arbitrage. Several deals saw limited upside as they are close to completion. Additionally, a widely held pharmaceutical deal came under pressure as the FTC expressed antitrust concerns, resulting in negative performance on the deal.

 

Relative value strategies had modest performance as the strategies tend to have less overall exposure to the broader markets. Fixed income oriented strategies fared the best, taking advantage of the 15 to 20 basis points decline in interest rates along with tightened credit spreads. High yield spreads contracted 52 basis points.

 

Both discretionary and systematic macro strategies had strong performance with positioning in multiple asset classes contributing. Managers have generally been positioned for higher equity values, lower interest rates and rising commodities. In addition to benefitting from the movement in equities and interest rates, commodities were sharply higher as well, with oil particularly strong at up more than 9%.

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