Category: Equity

ALTERNATIVE MARKETS UPDATE Q3 2020 - MACRO OUTLOOK BY AQUILA MARKETS

23/10/2020

Alternatives Market Update October 2020

The coronavirus has hit the world severely in 2020. Europe, which had the virus under control in summer, has seen a huge surge in daily cases among almost countries. Some countries, such as Ireland, have already reacted with measures that are close to a lockdown which many countries have experienced in March and April 2020. Stock prices, especially in the US, have risen to record levels, due to the money printing of central banks, all above the Fed. However, at the end of Q3 2020, stocks have not continued their bull run after the crash and have started to decline. Especially tech stocks, which were undeniably the winners of the crisis, have experienced a decline. Nevertheless, the drawdowns now are in no comparison of the gains realized throughout the crisis. The developments observed in the stock market also apply partly to the macroeconomic indicators of recovery, as shown in Figure 1. It shows that the economy globally as well as the US are recovering, whereas Europe and Japan are moving flat.

Figure 1: Economic Indicators by Country, Source: Andrews Gwynne, Haver Analytics, CEIC, IMF & Morgan Stanley Research, October 2020

Hedge Funds

Figure 11 and 12 show our internal strategies compared to appropriate benchmarks. Our SMC Credit Strategy Index is up 2.11% as of September 2020. The SMC Equity Strategy Index has recovered quite well over the year and is up 13.90% with the most successful individual strategies being the Long/Short US Equities Disruptive Technologies strategy with a YTD of 48.20% and the Long/Short US Equity Consumer, TMT, Healthcare strategy with a YTD of 50.08%. Our SMC Tactical Trading Strategy Index is up 104.28% as of September, large based on various cryptocurrency-based strategies. These are further elaborated in the cryptocurrency section. Regarding individual strategies, the Discretionary Global Macro strategy did very well in 2020 with a YTD of 60.75%. The AuM of the hedge fund industry is at $3.22tn as of August 2020, according to Figure 13. The industry recovered quite well, as the AuM dropped way below $3tn during the year 2020, and it is now almost back at the level of $3.29tn, where it was at the end of 2019. The most common strategy (by AuM) is long/short equity, which accounts for 34% of the industry’s AuM. The next most common strategies are multi-strategy and CTA/managed futures but these strategies already account for a substantially lower percentage of the industry’s AuM. A further breakdown of strategy volume by AuM is shown in Figure 14.

Figure 11: SMC Indices and a Comparison of Benchmark Indices, Source: Stone Mountain Capital Research, October 2020

Figure 12: Summary Table of SMC Indices and a Comparison of Benchmark Indices, Source: Stone Mountain Capital Research, October 2020

ALTERNATIVE MARKETS UPDATE - MACRO AND POLITICAL OUTLOOK SEPTEMBER 2020

10/9/2020

Alternative Markets Update September 2020
Last week, tech stocks have experienced the first major loss since the start of the pandemic, after which they recovered enormously fast and reached new record levels. The recovery was mostly caused by the financial stimuli of central banks and the shift from companies to home office and similar reactions to the pandemic. Figure 1 shows the debt-to-GDP levels in 2020 and a projection of 2030. It is expected that all those will fall going towards 2030, except for the US. UK and France will likely remain at the level they are currently. Japan is currently by far at the highest level with also reaching a level of 250. One of the big topics is inflation, due to unprecedented money printing around the world, but especially in the US. Figure 2 shows the historical inflation since the global financial crisis in the US. The average during this time of the headline and core CPI are 1.6% and 1.8%, while they are currently 1.0% and 1.6% after their substantial fall when the crisis emerged.

Debt-to-GDP Levels, Source: Andrews Gwynne, International Monetary Fund & Oxford Economics, September 2020

US Inflation Since the Global Financial Crisis, Source: Andrews Gwynne & U.S. Bureau of Labor Statistics, September 2020

September PREVIEW by Macro Eagle
Famously, September is the cruellest month for equity markets, with the Dow down 41/70 times since 1950. Apart from the ongoing issues mentioned above the key events in the month ahead are: Treasury issuance and unemployment figures this week. ECB and Russian regional elections next week. New Japanese PM, TikTok deadline and FOMC during the 3rd week. Italian election during the fourth week. And the first US presidential debate in the last week. All while capital markets get hit by an avalanche of IPOs (Airbnb, Ant Financial, DoorDash, etc.). And don’t forget NATURE. In August we got fires and blackouts in California, hurricanes hitting the Gulf (Laura and Marco), the last ice shelf in Canada’s Artic breaking up and China/North Korea being hit by floods. But it is September when the hurricane season normally peaks.

September Preview, Source: Macro Eagle, September 2020

ALTERNATIVE MARKETS UPDATE AUGUST 2020 - FED WANTS OPTIONALITY - AND THAT IS BULLISH FOR VOL

27/8/2020

Alternative Markets Update August 2020
Covid-19 has caused a tremendous impact on central banks and leading to steep sovereign debt increases in the whole world. Figure 1 shows the global sovereign debt to GDP. It is currently at the second highest level it has ever been only behind WW2. As the level of 89.5% shown in the graph is just as of Q1 2020, it is likely that the level will surpass its previous high during WW2, as the most severe impact has been during Q2 2020. Furthermore, central banks had to use huge fiscal support, as shown in Figure 2. The means necessary outclass every economic crisis by far, except for wars. The differences are especially shocking when comparing it with the Great Depression starting in 1929 and the Global Financial Crisis starting in 2007.

Global Sovereign Debt/GDP Levels from 1851 to Q1 2020, Source: BofA Global Research, IIF, IMF and Maddisson Database, August 2020

Fiscal Support of the FED from 1901 until now, Source: BofA Research Investment Committee, Global Financial Data, White House Budget, August 2020

Fed Wants Optionality - and that Is Bullish for Vol! by Aquila Markets
*Fed creates optionality around Yield Curve Control and its “now in doubt” September review – which by definition creates volatility
*We are watching with interest to see if USD higher / risk lower persists, but we do not think the “highs” are in
*We believe the market is yet to begin considering a potential sweep by the Dems – this is a core theme on the radar for the Autumn
Despite having been quite sanguine about the Fed, the golden rule of the Fed “creates” volatility worked once again. There is clearly pushback within the FOMC itself to Yield Curve Control, recognising the upside of entering into a policy that the market is defacto already following is limited. Instead, the Fed has created optionality for itself. Additionally, the market started to question whether the results of the Fed’s policy review would indeed be presented in September, where average inflation targeting – ie letting inflation run Hot – would be a core part.
The timing of such a big announcement is creating an issue for the Fed, given the election, the recovery and the situation with the virus. September we believe will be entering a period of max uncertainty on the those three issues, which makes commitment to long term plans hard to justify, and it may be the Fed it trying to – again – create optionality for itself by delaying until, let's say, December.
But given the correlations we have been highlighting between rates, equities, commodities (Gold is correlating strongly with TLT, for instance) and realised volatility, any sense that rates COULD go higher caused the spill lower in stocks, especially given the horrendous breadth in US equity leadership, weakness in Asian stocks and a stalling in European markets.

ALternative Market Outlook h2 2020

13/8/2020

YTD Price Development in US Equities, US 10Y Yields, USD and Gold, Source: MacroEagle, August 2020

AUGUST PREVIEW. The most exciting week this month is clearly the first. We get to know Biden’s pick for VP (more below); I do expect the ECJ’s answer to the German Constitutional Court and we will see the next tranche of the US relief package agreed before Congress breaks for its summer recess. In the second week, as usual, we get a lot of economic and sentiment data – the rate of change being more important than the number itself. As for the last two weeks, the main calendar focus will be the virtual Central Bank symposium at Jackson Hole. Spoiler alert: August has a real bad reputation for nasty equity sell-offs. Increased US-China tension (on the back of the US presidential campaign) is probably my No1 pick for “possible trigger” (more below).

Important Events in August 2020, Source: MacroEagle, August 2020

alternative market update h1 2020

29/7/2020

The SMC equity strategy index is up 5.94% in 2020 and outperformed all of its benchmark indices by more than 5%. The credit strategies were suffering and just recovered from their level of end 2019. The SMC tactical trading strategy index did very well in this turbulent environment and is up more than 20% in 2020, whereas most benchmarks are between -4% and 3% except the HFR cryptocurrency index. Our fund of hedge fund strategies were struggling as well and are still down 0.41% for the year, despite their outperformance of benchmark indices. The SMC cross-asset and single manager indices are up more than 5% in 2020. The best performing individual strategy is Discretionary Global Macro, which is up approximately 40% in 2020, despite a loss almost 10% in June 2020. Similarly, the best performing equity strategy is Market Neutral Equity US Algo with a YTD of 27.89%.

Further equity strategies that performed very well are Long/Short US Equity Consumer, TMT, Healthcare with a YTD of 26.76% and Long/Short US Equities Disruptive Technologies with 25.90% return in 2020. Further details are found in the table below the summary of H1 2020.

Table: Performance of Stone Mountain Capital Indices Compared with Benchmarks, Source: Stone Mountain Capital Research, July 2020

Figure: Performance of Stone Mountain Capital Indices Compared with Benchmarks, Source: Stone Mountain Capital Research, July 2020

Alternative Markets Update and Macro and Political Outlook July 2020

9/7/2020

HISTORIC FIRST HALF
Short illustration below to remind you how exceptional these last six months have been. We went from economic optimism (“Phase One” US-China trade deal) to geopolitical dynamite (Soleimani assassination) to trade wars (Saudi-Russia oil price war) to the mother-of-all curved balls: COVID. The latter killing half-a-million people (and counting), plunging the world economy into recession and triggering changes in the geopolitical and economic landscape that will last for years to come. With regards to the latter I have written about these in past editions (the rise of “localism”, the danger of the “blame-game” and “resilience over efficiency”).

Figure: Monthly Headlines During H1 2020, Source: Macro Eagle, July 2020

JULY AND SECOND HALF PREVIEW
Three things will probably dominate. First, today’s start of Germany’s EU presidency with the focus on EU budget (MFF), recovery fund, COVID preparedness, Green Deal, China and Brexit - in that order.

Second, the US election – with Trump becoming more erratic as his chances vanish; Biden picking his running mate and China/BigTech becoming a bipartisan punchbag. Three, COVID news on the medical and economic front. Expect the US$600-unemployment-add-on (expiry: 31-July) to be extended, but at a lower rate. Looking into Year-End, my main worry is the September/October period, when (1) the US presidential race heats up and China/EU will know about it. (2) Government pandemic-support programs globally start to taper, leading to bankruptcies, downgrades and job losses. (3) The return of colder weather and a potential 2nd wave. (4) The traditional hurricane season – since Climate Change is still happening.

Figure: Overview of Event During July 2020, Source: Macro Eagle, July 2020

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ALTERNATIVE MARKETS UPDATE Q3 2020 - MACRO OUTLOOK BY AQUILA MARKETS

ALTERNATIVE MARKETS UPDATE - MACRO AND POLITICAL OUTLOOK SEPTEMBER 2020

ALTERNATIVE MARKETS UPDATE AUGUST 2020 - FED WANTS OPTIONALITY - AND THAT IS BULLISH FOR VOL

ALternative Market Outlook h2 2020

alternative market update h1 2020

Alternative Markets Update and Macro and Political Outlook July 2020

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ALTERNATIVE MARKETS UPDATE Q3 2020 - MACRO OUTLOOK BY AQUILA MARKETS

ALTERNATIVE MARKETS UPDATE - MACRO AND POLITICAL OUTLOOK SEPTEMBER 2020

ALTERNATIVE MARKETS UPDATE AUGUST 2020 - FED WANTS OPTIONALITY - AND THAT IS BULLISH FOR VOL

ALternative Market Outlook h2 2020

alternative market update h1 2020

Alternative Markets Update and Macro and Political Outlook July 2020

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