Alternatives | September Commentary

October 24, 2019


The United States and China de-escalated their trade war in advance of planned meetings in October. The U.S. delayed an increase in tariffs while China exempted certain agricultural products, namely soybeans and pork. This resulted in a constructive environment for equities, with the S&P 500 up +1.9% for the month. Long/short equity was one of the better performing strategies, but returns were muted due to sector positioning. Health care, a key sector exposure, continued to feel the effects of the “Medicare for all” rhetoric as well as broad concerns about rapidly increasing drug prices. Health care was the only sector in the S&P 500 to post a negative return.


Event driven strategies were the top performers, benefitting from the upward movement in equities as well as developments on specific merger transactions. The inversion of the U.S. yield curve had weighed on a widely held bank transaction, but the return to a positively sloped yield curve provided a bounce for banks, leading to a nearly +12% return in the target company.


Relative value strategies posted a small positive performance with credit related strategies leading the way due to slight tightening in credit spreads. While the Fed cut rates, they indicated no additional cuts through 2020 which contrasted with market expectations. The result was higher rates across most of the curve, providing a headwind to stronger performance.


Macro strategies struggled under reversals of several asset classes. Systematic strategies were particularly challenged as positioning for lower interest rates resulted in negative returns. Short exposure to agricultural commodities detracted, as corn rallied more than +8%. Currencies also proved to be difficult, as short exposure to the British pound created losses as the prospect for a no-deal Brexit declined.


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