Research Team Update
As results are released for March (and Q1) performance of liquid alternative strategies, Toby Goodworth weighs up which strategies have delivered during one of the most challenging months in market history.
IN THIS PAPER
Hedge funds. A “win” in March constituted losing only low single digits. Pure trend-following gave the standout returns in March and Q1; long-volatility strategies such as CTAs and Systematic Macro delivered material convex diversification. Event Driven, Equity Long/Short and Merger Arbitrage managers produced modest losses.
Multi asset.Certain strategies delivered some impressive capital preservation, with the GARS cohort doing particularly well – losing only 2.1% on average. Risk parity managers lost 7% on average, but there were strong results for the less conventional, more dynamic players.
Alternative risk premia. endured its worst ever month, and quarter, losing 6% in March on average. “Academic” risk premia suffered less than the “Practitioner” premia, while the inclusion of Trend was a key differentiator for stronger performers.
March 2020 will surely be remembered as a major turning point for financial markets in the modern era. Following on from our previous update, this research note looks in detail at the performance of several core liquid alternative strategies through March 2020 and Q1, now that month-end NAVs are available. Outright positive monthly returns were few and far between, although there were notable bright spots.
The second half of March was particularly challenging for many: widespread de-risking resulted in further downward price pressure, exacerbated by heightened illiquidity and extremely wide bid/ask spreads. This was particularly evident in fixed income and currency markets, where spreads in usually highly liquid instruments widened by many multiples. In this respect, March was as much a liquidity crisis as it was a response to the economic impact (actual and presumed) of COVID-19.
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