Alternative Markets Update February 2021
Hedge funds did not do that well in January 2021, as they could not continue their strong upward trend from the last quarter in 2020. Equity-related and fund of hedge funds strategies were down between 0% and 2%, whereas fixed income strategies ended the month slightly positive. Global macro strategies were in between the equity and credit strategies. Our most profitable strategies in January were crypto-related strategies, one of which is up almost 100% in one month only. This was driven largely by the growth in altcoins, in particular smaller ones. February 2021 is likely to affect equity strategies badly, as last week, stock markets dipped, due to profit taking in technology stocks and somewhat larger concerns about inflation. The inflation concerns are rising, as interest rates are increasing at the longer time horizon. In particular in the US and the UK a yield curve steepening is happening. This is further increased by the development in the central banks’ balance sheet, which have strongly grown. Figure 1 shows the central bank balance sheet over the last 15 years including a projection until the end 2022, which implied that the G4 central banks’ balance sheets will almost double since the start of 2020. Moreover, according to Figure 2, global debt has skyrocketed as well since 2020, as the global debt increased from around $220tn to $270tn at the end of 2020 and is expected to grow to close to $300tn at the end of 2022.
Commodities, aside from gold, mostly had a bad year. Figure 3 shows how commodities have developed in comparison to the US stock market. The essence is that commodities have never been worth so little in comparison to equities and after each crisis, there was a huge turning point. The worst start in 2020 certainly had oil, whose futures (WTI Crude) went negative when the crisis picked of steam in developed economies, which was thought to be impossible. It then recovered fairly quickly and stabilized at $40 for WTI Crude ever since, which was the case for most commodities. Towards the end of November, it started to surge again and continued to do so in December and is currently at $47 per barrel. A major driver for this development is certainly the start of vaccinations and the expectations of going back to normal relatively soon. Brent crude oil experienced a similar rally, although it started to soar earlier and thus gained a bit more than WTI. Brent Crude is now trading at $50 per barrel. Another commodity that has recovered very well is copper. It is trading at 7,068$/mt and has just slightly surpassed its highs from early 2018. During the crisis, it was trading at around 5,000$/mt. Furthermore, the price of copper is unlikely to decrease in the near future, as the stockpiles have not been as low since 2014