15 FEB


Absolute Return, Topics

External alternative multi management portfolios - February 2017

Performance in January was a mixed bag across the global financial markets as Donald Trump took office. In the US, Tech-, Biotech-, Healthcare- and Commodities-linked securities advanced strongly. In Europe and Asia, performances were more spread out. The US Dollar declined against most currencies, more specifically the AUD, the Swiss Franc, the Euro and the Yen. Gold, silver and platinum went up strongly. Natural Gas dropped. In this environment, Hedge Funds were up, as evidenced by the HFRX Global Hedge Fund Index € +0.31% gain.

Long short equity

We have maintained our neutral stance on the strategy in connection with the anticipated rise in interest rates and its negative impact on borrowing costs. The recent renormalization continues to unfold and we are progressively transitioning to more pro-cycle managers. We believe that they are likely to be best positioned to take advantage of the possible pro-business policies expected from the new administration in the US.

Global Macro

Over the past month, stock markets in advanced countries – spurred by expectations of fiscal stimulus and deregulation in the US and by solid incoming data – strengthened further. In 2017, the markets will see whether this optimism is justified as President Trump takes office. Many political and economic uncertainties remain (elections in Europe, credit in China, …). As mentioned last month, we believe significant shifts in asset prices will continue to occur as anticipations adjust to realities. The macro strategy will be able to capture and benefit from these wide market moves thanks to increasing volatility on rates and FX. We have hired a new manager this month to complement our exposure to the strategy. Our Global Macro bucket may balance our net long exposure as they invest in different risk factors to our equity funds.

Quant strategies

We continue to favour short-term managers that may benefit from increasing trading flows and volatility as global investors will need to shift their portfolio allocation to adjust to the changing macroeconomic conditions (as mentioned above in the macro section). And we continue to avoid the slower strategies, which have become crowded due to their success in recent years. 2016 was a difficult year for quant managers, with low volatility, heavy sector rotation and short-covering, but over the long run, as quant strategies have been the best and most consistent performers, we remain overvweight in these strategies.

Fixed Income Arbitrage

We are increasing our fixed income arbitrage allocation. The recent US election and the forthcoming elections in several European countries have increased volatility on interest rates; this will benefit the strategy. Our managers are benefiting from European basis trading and the widening of US swap spreads in the run-up to the money market reform. There are fewer opportunities on the JPY RV side.

Emerging markets

Emerging markets offer plenty of investment opportunities across asset classes (currency, interest-rate curve, single-name equity and debt). To exploit these opportunities, we have invested in global macro managers, some specialized in a given region like Asia, and in local managers that carry out fundamental analysis and make on-site company visits to pick stocks.

Risk arbitrage - Event driven

We are turning more positive on the strategy even if we remain mindful of the risks linked to the net long bias of event managers. The number of transactions could increase if some degree of deregulation is put in place. In such a case, large cash balances earmarked abroad by US corporations could be repatriated and possibly used for acquisitions.

The investments in European event managers that we are exploring will benefit from the need to bolt on growth.

In M&A arbitrage, we favour less static and more spread-trading-oriented managers, as average margins among deals have compressed significantly..


We are more bullish on the distressed cycle, because of the potential increase in interest rates and the reduction in QE. So far, the energy sector, in which there has been massive issuance in recent years, has provided an attractive pool of opportunities, given the volatility of oil prices and its impact on these securities. Emerging markets may also offer opportunities due to the strength of the dollar and the hike in interest rates.  

Long short credit & High yield

We remain cautious on the strategy, although the US market has been more challenging than Europe. The quest for yield and the zero-to-negative rate environment have provided strong support for the asset class, and delivering performance on the short side is highly challenging.