One contributor to these strategies was managers continuing to hold their conviction trades, despite January’s choppy waters, according to Anthony Lawler, portfolio manager at GAM. Hedge funds were up 1.6% for February, as measured by the HFRX Global Hedge Fund index in US dollar terms.
“Our view that 2014 was likely to prove to be choppy with more dispersion, and therefore more likely to reward alpha, remained valid in February. So far this year event driven and equity hedged managers have outperformed broad equity indices,” stated Lawler.
Year-to-date through the end of February, the HRFX Event Driven index was up 2.9% and the HFRX Equity Hedge index was up 1.6%, compared to the MSCI World index up 1.2%, all in US dollar terms.
“Conversely, global macro and CTA managers posted mixed results - several longer-term conviction trades detracted from performance, such as long US dollar and the Japan reflation,” he added.
Credit continued to be well supported in February with a lack of new bond issuance helping to drive existing credit higher as money flowed into high yield and investment grade names.
GAM's outlook for the rest of 2014 remains unchanged and investors should be prepared for choppy waters, suggested Lawler.
"Volatility is likely to continue to be more of a feature this year, but there are arguably investment opportunities especially within equity long/short and event driven approaches. We continue to expect global macro strategies to find good risk/reward opportunities later in the year as some trades like Japan reflation re-establish themselves. We are already seeing green shoots appear because divergences in global policy paths and growth spell opportunity for alpha in fixed income and currency markets."