Category: Volatility

Alternative Markets Update and Macro Outlook March 2020 II

26/3/2020

Alternative Markets Update March 2020
The current market environment is highly unstable. The coronavirus remains the most discussed topic, as the number of infections keep increasing at a fast pace. Within the last two weeks, most countries in Europe have declared a state of emergency alongside a lockdown, which only allows people to go outside, if they need food or medication. The number of deaths increases faster than ever, as the health care system in the most affected countries in Europe, Italy and Spain, are overrun. The virus in the US is spreading fast and the number of infections rose above 50,000, despite being severely behind Italy in the infection curve. In Asia, the situation is different in each country, as India just declared a lockdown, while China partially removed the lockdown in Wuhan and has had no new cases since last Thursday. The market environment is difficult to evaluate, as different asset classes correlate to a high level and the situation we are experiencing is unprecedented. Many governments and central banks are issuing rescue packages to add liquidity to the market and help businesses to overcome the close future. Central banks have also cut rates multiple times, if they could without falling to negative interest rates. The US provides $2tn to boost the economy, while Germany agreed on a package worth €750bn to fight the impact of coronavirus. Since Tuesday, the markets have been gaining substantially, despite high daily volatility. The Dow Jones for example, rose from almost $18,000 back to $22,000 and European indices have seen similar developments, although their upward movement was not as sizeable. Oil saw its highest percentage gain within a day last Thursday,

while Bitcoin recovered from its $3,800 low and is back at $6,600 (as of 25th March). As of end of February 2020, the tactical trading strategies remained the most profitable, as the discretionary global macro strategy and the Bitcoin Altcoin actively managed strategies are up almost 23% in 2020. The equity strategies had huge deviations, whereas the strategies, which could hold their gains from January are up 7%. The remaining equity strategies were the biggest losers in February, as they lost from 5% up to 8%. Credit strategies remained relatively stable, as most of them either lost a few basis points or they gained some basis points.

Macro Outlook March 2020 by Aquila Markets

We are entering the “whatever it takes” response phase, and whilst I believe that more countries will enter full lockdown, and more cases will grow in Africa and India (potentially a true catastrophe), for markets in the short term the huge Fed package announcement yesterday does change the game somewhat.

Alternative Markets Update and Macro Outlook March 2020

13/3/2020

Alternative Markets Update March 2020

Since the last week in February 2020, markets across several assets plummeted. Main driver of this development is certainly the coronavirus cover-19, more specifically the increased number of infections outside China, and the response of the FED and BoE to cut interest rates by 0.5% each as a response. Furthermore, a disagreement among Russia and Saudi Arabia arose during their OPEC+ meeting about the oil price strategy, which lead to a 30% loss in oil prices. The major indices of most countries lost more than 10% and face a high volatility since the virus outbreak outside China with a WHO classification as epidemic. It is expected that the interest rates in the positive yielding countries like US, Uk, Australia and New Zealand are lowered further. Safe haven assets, such as currencies like CHF and JPY or commodities like gold continuously increased in value. Bitcoin, oftentimes referred to as digital gold, could not establish itself as safe haven asset, as it decreased substantially to $6,105 on 12th March 2020 and other crypto assets followed in a similar fashion with declines.

Macro Outlook March 2020 by Aquila Markets
The current situation is now comparable to 2008 in terms of the potential shock to the global economy. Whilst the initial shock of the virus on global supply chains, the ongoing ramifications are significant. In the GFC, within a few short weeks, Lehman went bust, Banks merged, AIG was bailed out amongst many other companies. Rates were slashed globally. The world “survived”. But the policy responses – QE in waves in the US , austerity in Europe, the rise of China , US monetary policy, has defined the past decade. But, because failure was banned and assets supported, we have fuelled yet another credit driven boom especially in the US.

Alternative Markets Outlook 2020

13/2/2020

Hedge Funds
The hedge fund industry realized its highest gains of the decade, with an average return of more than 9%. Figure 1 shows the distribution of our hedge fund strategies, of which more than half of the strategies exceed a return of 10%. As the strategies performed differently across strategies in Q4 2019, it is interesting to have a look at Figure 2, in which is shown, how the different strategies performed compared to their benchmarks. The redemption trend continues but the amount redeemed continuously declined. However, investments in the industry also declines. Overall more redemptions than investments were offset by an organic growth of around 9%, resulting more or less at the same AUM as at the end of 2018. For 2020, we assume, that these trends continue. Investors may expect lower returns than previously, as the industry was unable to meet expectations in most years of the decade. Now, as equity markets are at record highs, it is unlikely that it continues raising at similar pace. As a consequence, we assume that there is a shift in strategies within the industry. This is further supported by the increased interest of Investors in ESG, which is rarely incorporated in the industry. Pensions funds are likely being more interest in hedge funds, as interest rates remain at a very low level.

Along with the shift in strategies, the pressure on the industry is tense, as the standard 2-20 fees are lowered more and more. We do see a tendency in the market with the highest quality managers with constant outperformance to be able to charge higher fees than 2-20 and attracting most of the capital inflows into the industry. Furthermore, there are so many funds, whereas only few manage the main stake of the AUM of the industry, implicating a consolidation trend And focus on developed manager outperform the benchmarks. With the good results in private markets, it is likely that cash is moved towards the private equity and debt industry, as the profit expectations of the hedge fund industry is likely to decline.

Figure 1: Distribution of Performance of Stone Mountain Capital (SMC) Hedge Fund Strategies in 4Q2019, Source: Stone Mountain Capital Research

Figure 2: 2019 Hedge Fund Performance of Stone Mountain Capital (SMC) Strategies compared with Benchmarks, Source: Stone Mountain Capital Research

Alternative Markets Update H2 2019

21/1/2020

Hedge Funds
The industry had its best year since 2013 and the average hedge fund is up more than 9%. Especially the results, which were achieved in H1, are extraordinary. H2 was more volatile, in which equity strategies did very well, while e.g. macro and cryptocurrency strategies lost compared to their results of H1 2019. When considering the economic and political environment, these results are even better, as 2019 faced many uncertainties. Noteworthy are the debate about Brexit all year, the trade war between the US and China, the attack on an oil facility in Saudi Arabia as well as the recent assassination of Iranian general Soleimani, which may have further consequences. Nevertheless, our cryptocurrency strategy remains the

most profitable strategy this year with a YTD of 82%, followed by several equity strategies and our global macro strategy. Figure 1 shows the performance of our strategies compared to several benchmarks, whereas Figure 2 shows the returns sorted by hedge fund strategy.

Figure 1: Overview of Performance of Different Hedge Fund Strategies: December 2019, Source: Stone Mountain Capital Research

Figure 2: Overview of Performance of Different Hedge Fund Strategies: January 2020, Source: Eurekahedge

Alternative Markets Update 2019 - Cryptocurrency & blockchain 2020 outlook

13/1/2020

The hedge fund industry performed strongly in 2019, as the industry achieved a steady gain of 9%, whereas several single managers beat the market and gained double digits. Despite those positive numbers, hedge funds still underperformed the equity market and the trend of the past years continues. In order to compete, hedge fund reduced their fees. In each of the last five years, more hedge funds have been shut down than launched. In total, more than 4,000 hedge funds have been liquidated in this period. 2019 was a good year, as all of our strategies yielded positive returns. Particularly strong this year were the equity strategies, especially in H1 2019 and towards the end of 2019. Furthermore, the tactical trading strategies performed even better until summer 2019, but faced losses at the end of 2019. Regarding the macroeconomic environment, the assassination of Iranian general Soleimani by the US and the counterattack of Iran on a US military base causes high uncertainty. The passenger plane, which got hit by a missile in Iran, further

increases tensions, even though the launch of the missile was likely unintentional. As a reaction of this newly escalated situation, safe haven assets, such as gold, which is now at a seven-year high, see increased demand. Similar developments were observed for Bitcoin. A cryptocurrency 2020 outlook is provided by BeQuant and a blockchain 2019 review and 2020 outlook is provided by Pantera Capital below.

Alternative Markets Update And Macro Outlook September 2019

14/9/2019

Hedge funds achieved a performance of 0.31% in August 2019, despite the continuously increasing unstable economic environment. Brexit is getting more chaotic with the suspension of the UK parliament and a newly created law, which forcing the PM to delay Brexit to 2020. A general election was denied twice. The trade war between China and the US tightens further with the new tariffs on consumer goods. Furthermore, the conflict in Hongkong does not seem to end very soon either. Aside from political problems, the current economic situation with diminishing yields of fixed income and the inverted yield curve in UK and the US does certainly not help. Despite these developments in the fixed income market, our strategies have yielded an 0.80% gain in July. Alternative assets getting further boosted by pension funds, as they are looking for yields, due to the current fixed income market situation. Bitcoin was more or less stable over the last month. However, the interest in Bitcoin surely did not decline, as for example China starts its own cryptocurrency and Bitfinex issuing

leveraged trading on Bitcoin and Ethereum with 100x. There may be several drivers for this development, such as its increased acceptance as well as its market development during the year. The Bitcoin Altcoin Actively Managed strategy achieved the best YTD performance of all strategies on our platform. Another key driver might be, that investors seek uncorrelated assets, for which cryptocurrencies are ideal investments, as shown in Figure 1.

Figure 1: Correlation of Different Asset Classes When Comparing Weekly Returns from Q2 2016 to Q2 2019, Source: Binance Research Report: Bloomberg

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