Man AHL Alpha (AUD) (MAN0002AU) Report & Performance

April saw some welcome calm return to financial markets; significant given March’s concerns that the SVB crisis might migrate into a second Global Financial Crisis. In Japan, new central bank governor Ueda revealed he was happy with current monetary policy, which sent the Japanese yen into a tailspin versus a number of currencies. The OPEC+ group of oil producers surprised markets early in the month by announcing cuts, which initially sent prices of oil higher, but these mostly reversed by month end. The Fund generated a positive return, net of fees, with positive contributions from FX, stocks, and commodities offset by losses in fixed income.

Short Japanese Yen positions against the Euro and British Pound produced gains as new BoJ governor Ueda dashed hopes that the bank might embark on a more “normal” policy during his tenure. Losses were seen in mixed positioning of, for example, the Colombian Peso and Swiss Franc against the US Dollar.

Gains were accrued in equities trading as the Fund gradually re-built its long positions as concerns around SVB and broader implications stabilized. The VIX volatility index fell to its lowest level since November 2021 leading to gains from the Fund’s short position. Long positions in MSCI Taiwan and US semi-conductor manufacturers generated losses. Credit trading was flat.

Trading in commodities was mixed. Agriculturals, and a long position in sugar in particular, was the standout, rising to an eleven-year high on supply concerns in Asia and Europe. Volatile oil prices in the wake of the OPEC+ production cuts announcement were detrimental to the Fund’s positions. Trading in metals was flat, with gains generated from a short zinc position, while a long in copper detracted. Small, and varied positions in bonds detracted slightly over the month as the asset class has yet to find a new direction post SVB.

Evidence of the consequences of rapid rises in interest rates became apparent in March, first with the collapse of Silicon Valley Bank, and then contagion to Credit Suisse in Europe. There was a significant flight-to-quality effect in markets – riskassets fell, but gold prices rose, safe-haven currencies rose, and short-term government bonds saw their largest gains in decades. These were counter to dominant market trends and hence did not suit the positioning of the Fund which returned -5.72% net of fees. Losses were driven by fixed income, equities, and credit positions. A decline of 61bp on 13th March for US 2-year Treasury yields was the largest in over 40 years, was against the prevailing price trend, and was detrimental to a short in the instrument and indeed all other tenors of US treasuries traded by the Fund. Canadian bonds and swaps also generated losses in fixed income trading, and only one market, Brazilian swaps, generated a small gain. A long position in European financial equities suffered as concerns emerged over Credit Suisse and, later, Deutsche Bank, but losses were also seen from long positions in European insurers and US banks. A short position in European real estate companies generated a small offsetting gain. Risk-on positions in CDS indices also were hurt in the flight-to-safety, with European and US investment grade companies most clearly in the crosshairs. Commodities trading was relatively unscathed by the crisis in financial markets. A silver position generated a loss as it flipped from short to long as precious metals benefitted from a flight-toquality effect. Prices of EUA carbon emissions, on the other hand, fell along with risk assets, generating losses for the Fund’s long position. Sugar trading was profitable, however, as prices hit a 10-year high, driven by declining crop yields resulting from poor weather and a ban on pesticides. Currency trading was mixed, dipping into the red overall. Short positions in safe-haven currencies such as the Swiss franc and Japanese yen generated losses in the flight-to-quality episode.

Winning trades exhibited less of a clear pattern; a long Chilean peso against the US dollar generated a modest gain. There have been no material changes to AHL’s risk profile and investment strategy since the last monthly report. There have also been no changes to the individuals who play a key role in the investment decisions of AHL since the last monthly report.

Federal Reserve Chairman Powell’s comment at the start of February that “the disinflationary process has started” was in contrast to price action on the month. A strong US jobs report prompted fears of more persistent inflation than was anticipated, leading to falls in equity and bond markets, and a rise in the US dollar. The Fund generated a positive return, net of fees, with positive attributions from fixed income and FX, and losses from metals.

Expectations that the Fed might have more scope to raise rates led to a broad sell-off in fixed income instruments, particularly at the short end of the curve. This benefitted the aggregate short positioning in the Fund, but the greatest beneficiaries were US instruments at the 3m, 2y, and 5-year points. A long position in South African swaps, on the other hand, generated a loss.

Trading in currencies generated a positive return on the month. The Fund generated gains from long USD currency crosses as the greenback rose on greater expectations of further rate rises from the Fed. Top performers were Israeli Shekel and Swiss Franc. Short dollar positions against the Chilean peso and Euro, on the other hand, lost out.

Returns from equities dipped slightly into the red, led by long positions in the Australian SPI 200 and MSCI Emerging Markets indices. Cash equities trading fared better, particularly in Europe with a long banks position. Trading in credit fared similarly, with losses in US CDS indices overcoming smaller gains in European indices.

Losses in commodities were driven by metals, most notably longs in precious metals, and particularly gold which turned tail, losing 5% in February after three successive winning months. Losses from generally short positions in the oil complex led to an overall negative return in energies. Gains were generated in agricultural trading, however, led by a short in wheat whose price fell for the fifth straight month on news of changes in Russian and Ukrainian supply, as well as improved forecasts for the US crop.

There have been no material changes to AHL’s risk profile and investment strategy since the last monthly report. There have also been no changes to the individuals who play a key role in the investment decisions of AHL since the last monthly report.

Risk assets received a New Year boost from two areas; first, a re-opening of China’s economy and second, a continuation of the decline in the cost of energy which eased market concerns of a recession. Prospects of further aggressive rate hikes from central banks diminished, sending fixed income yields lower, and the US dollar continued its decline. The Fund generated a positive return with gains from equity, credit, commodity and FX positions offset by losses in fixed income.

The rally in risk assets provided a tailwind to the Fund’s net long equities position. Top performer was a long in European banks as the sector rallied 15%. A rallying Nasdaq, on the other hand, rising 11% on the month after a -33% return in 2022, did not suit the Fund’s short index future position nor the shorts in US software and services companies in general. Credit spreads also narrowed over the month, benefitting short CDS positions in US investment-grade and European higheryielding indices. The US-dollar continued to fall from its peak in November 2022, and this trend was best picked up through long positions in commodity currencies, most notably the Mexican and Chilean pesos. A short position in the Israeli Shekel against the greenback, on the other hand, generated a loss. Gains in commodity trading originated mostly from energy and metals, but with quite different narratives. China’s re-awakening was beneficial for long copper and iron ore positions, while gold’s price was supported by a weaker US dollar and expectations that central banks might continue to buy gold to support their ‘dedollarization’. Warm January weather prompted falls in the price of natural gas on both sides of the Atlantic, and profits for the Fund. A short position in coffee and a long position in carbon emissions generated losses. Fixed income prices rallied in January on expectations that central banks may ease their rate-hiking plans.

Several of the Fund’s short positions, such as Italian and Australian government bond futures, flipped to long, incurring losses in the process. Small offsetting gains were generated from a short in Japanese swaps as the market continued to respond to the Bank of Japan’s decision to double the effective yield cap last month. There have been no material changes to AHL’s risk profile and investment strategy since the last monthly report. There have also been no changes to the individuals who play a key role in the investment decisions of AHL since the last monthly report.

Despite rate rises in line with expectations, both the Fed’s “dot plot” and comments from ECB’s President Lagarde sent a hawkish message to markets which responded in their by-now-familiar 2022 fashion: stocks down, bonds down. There was mixed news from China as relaxed COVID restrictions were swiftly followed by a sharp rise in cases of the virus. The Fund was flat for the month with positive returns from commodities and fixed income offsetting losses from credit and equities.

News of China’s relaxation of its strict COVID rules alongside a fall in the US dollar propelled metals prices higher, most notably gold and silver. Prices across the soy complex also rose as demand from a re-opening of China, the world’s largest buyer, was coupled with dry conditions in supplier countries in South America.

The Fund saw profits in soymeal and soybeans as a result, but losses from soyoil. ECB President Lagarde’s comment, “Anybody who thinks this is a pivot from the ECB is wrong”, dashed the hopes of dovish bond investors, sending yields of European bonds higher and resulted in profits for short positions in German bonds in particular.

November’s market moves were concentrated around the US CPI print early in the month, with both headline and the core component coming in lower than expected. Investors interpreted this as opening the door to a more dovish turn from central banks; risk assets rallied, while bond yields and the US dollar fell, which was counter to trends that had been prevalent for most of the year. Elsewhere, there were rumours of China easing off its zero Covid stance, and cryptocurrencies took a blow on news of the bankruptcy of crypto exchange FTX. The Fund returned negative returns with losses from FX, commodities and fixed income while small offsetting gains were made in credit trading.

FX trading was the greatest detractor. These losses were most apparent in Asian currency crosses, most notably the South Korean won and Chinese Renminbi. A long position in the Mexican Peso against the greenback was the biggest gainer on the month.

Within the commodities complex, trading in metals and energies generated losses while agriculturals was flat. Short positions in gold and silver were caught offguard by the low CPI print. Positioning in energy markets was mixed over the month with the largest detractor being US natural gas. Within agriculturals returns were mixed with small gains coming from short wheat and long soybeans positions. The prospect of fewer rate rises to combat inflation sent fixed income yields lower, generating losses for the Fund’s dominantly short positions. Worst offenders were Canadian swaps and long-dated US Treasuries. Trading in equities was flat. Asian indices rebounded particularly strongly with the news of China moving away from its zero Covid policy, and the Hang Seng’s 27% rise hurt the Fund’s small short position. On the positive side, gains were made from a long in the Euro-STOXX and short in the VIX volatility index.

Trading in credit proved a welcome bright spot for the asset class after a difficult year. Positions were broadly short CDS when the CPI news emerged, and hence gains were generated as risk assets rallied. Top performers were in US investment grade and European crossover indices. There were no meaningful detractors. There have been no material changes to AHL’s risk profile and investment strategy since the last monthly report. There have also been no changes to the individuals who play a key role in the investment decisions of AHL since the last monthly report.