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Hedge watch jan 2013 final[1]


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Goldman Sachs HedgeWatch Jan 2013

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Hedge watch jan 2013 final[1]

  1. 1. January 2013January 2013 ReviewInvestor optimism extends into the new yearIntroduction Event driven managers post strongest gains in yearsUnderwhelming economic data and a moderate earnings Event driven managers generated positive performancepicture did little to offset bullish investor sentiment driven on the month, as the HFRX Event Driven Index gained 1by key policy announcements in January. US-based risk 3.4% . This monthly number represents the largestassets recorded early gains as a partial resolution to the positive return for the index since April 2003. Gains wereFiscal Cliff was signaled by the American Taxpayer Relief led by equity special situations, with attribution fromAct being signed into law. Investors were then offered a company-specific developments supported by morebrief respite from worries over the ensuing debt ceiling, as general appreciation across regional indices. Mergerpolicy-makers reached an agreement on a temporary arbitrage performance was also positive, although theextension bill. The notable absence of rate cuts by the sub-strategy continues to represent limited exposure forECB and surprisingly high levels of LTRO (Long Term many managers.Refinancing Operation) repayments by European banks While gains from performing credit have been somewhatfurthered gains, while trends in Japanese equities and capped by already rich valuations, many managerscurrencies continued amid a lighter stream of news. Gains continued to benefit from idiosyncratic positions as well aswere capped in the final days of the month, as a investments in large-scale liquidations. Structureddisappointing fourth quarter GDP print in the US gave products, particularly mortgage-backed securities,investors pause over the pace and sustainability of recent extended gains from 2012, as market participants remainglobal growth. Despite these longer term concerns, a focused on improving conditions within the housinggeneral reduction in near-term macro uncertainty allowed market. While there were few detractors within managers’equity markets to climb higher throughout the month, with long books, portfolio hedges generated modest lossesincreasing participation from the investing community. given the broad appreciation across risk assets and theHedge fund performance was positive in January, as the continuation of muted and downward trending volatility 1HFRX returned 2.0% with gains across most strategies. throughout most of the month.Fundamental managers benefited from broad-based gainsin both equity and credit markets, while key earnings Long/short managers ride risk wave higherannouncements allowed equity managers to further Equity long/short funds finished the month in positive 1differentiate themselves though stock selection. Trading territory, as the HFRX Equity Hedge Index gained 2.6% .oriented strategies also generated positive performance, Managers maintained moderate levels of risk throughoutwith managers participating in the equity rally, while also most of the month, navigating a mixed fourth quarterbenefiting from a continuation of recent macro trends, earnings landscape to post gains in-line with their netparticularly in relation to Japan. Risk levels for hedge exposure levels. While several key earnings surprisesfunds were generally above their recent averages, as dominated headlines, overall results for over- and under-strong performance, low levels of volatility and moderate performance of consensus expectations were similar tocorrelations have encouraged some funds to position historical averages. Long positions in financials andthemselves more aggressively. healthcare stocks lead gains, with exposure to USThis information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not beconstrued as research or investment advice. Please see additional disclosures. Past performance does not guarantee future results, which may vary.1 Source: HFR Database © HFR, Inc. 2013, Please note that HFRX performance indications are based on preliminary estimates.Goldman Sachs Asset Management AIMS Hedge Fund Strategies
  2. 2. January 2013 |financials being at their highest levels since 2010 by some positions in developed market crosses that had served asmeasures. Managers with long exposure to the safe-haven currencies during periods when Europeaninformation technology sector generally underperformed debt concerns were more acute. Gains in equities werethis month, partially driven by disappointing earnings broad-based, with risk allocations to this asset classannouncements from certain large cap companies. slightly above historical averages.On a regional basis, US indices climbed steadily higher, Divergence in DMFX trends against the US dollarwhile core European indices experienced more mutedgains. Managers with a focus on emerging markets EURUSD Curncy JPYUSD Curncy 110 GBPUSD Curncy CHFUSD Curncygenerally underperformed their developed marketcounterparts due, in part, to concerns over economic Value vs US Dollar (Normalized)growth and increasing government intervention within 105select developing nations. Japanese markets continued torally, as investors anticipated more accommodative policy 100conditions to exhibit positive knock-on effects within localequity markets. 95 Equity volatility and correlations remain muted 0.8 SP500 Realised Correlation VIX VOLATILITY INDEX Closing Price 90 90 31-Oct 30-Nov 31-Dec 0.7 80 70 88 10500 0.6 Source: Bloomberg,(LHS)of January 2013 USD/JPY as Nikkei Index (RHS) 60 10300 Correlation (%) Implied Volatility 0.5 Attribution from fixed income was mixed, with a long bias 86 50 10100 0.4 at the back-end of US and European rate curves serving 40 9900 0.3 as 84 detractor for most managers, while others expressed a 30 9700 Nikkei Index views on the increasing likelihood of inflation through USD/JPY 0.2 20 profitable steepener trades. Overall, commodity risk 9500 82 0.1 10 remains low amid muted volatility levels and limited 9300 80 0 0 trends. 9100 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 8900 Managed futures funds produced positive performance, 78 with longer-term strategies generally outperforming 8700Source: Bloomberg, as of January 2013 shorter-term strategies. Performance was driven by31-Dec 76 gains 8500 30-Sep 31-Oct 30-Nov from equity trading across regional indices, while longMacro managers extend gains in key trends positions in U.S. fixed income detracted. SignificantTactical trading strategies posted moderate gains in moves in energy-related markets led to further gains forJanuary, with the HFRX Macro/CTA Index returning managers, as crude exhibited a notable upward trend over 10.1% . Returns for macro managers were largely driven the course of the a continuation of trends that were successful in thefourth quarter of 2012, as managers profited from short Relative value sector benefits from muted volatilitypositions in the yen and long positions in local equity Relative value managers generated positive performanceindices. Within the FX space, long positions in the euro in January, as the HFRX Relative Value Arbitrage Indexagainst a number of developed market crosses benefited 1 rose 1.5% . Returns were broadly positive across sub-from early announcements that European banks had strategies, with the strongest performance coming fromexpedited the pace of LTRO repayments, although multi-strategy, convertible arbitrage and credit relativesentiment was tempered with a disappointing value funds. Quantitative equity market neutral strategiesannouncement on secondary repayments, which came up also generated gains while fixed income relative valueshort of analyst estimates. In response to the heightened managers underperformed, but still finished the month inappetite for risk assets, managers began to increase short positive territory.This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not beconstrued as research or investment advice. Please see additional disclosures. Past performance does not guarantee future results, which may vary.1 Source: HFR Database © HFR, Inc. 2013, Please note that HFRX performance indications are based on preliminary estimates.Goldman Sachs Asset Management 2 AIMS Hedge Fund Strategies
  3. 3. January 2013 |The material provided herein is for informational purposes only. It does not constitute an offer to sell or a solicitation of an offer to buy any securities.There may be conflicts of interest relating to the Alternative Investment and its service providers, including Goldman Sachs and its affiliates, who are engaged inbusinesses and have interests other than that of managing, distributing and otherwise providing services to the Alternative Investment. These activities and interestsinclude potential multiple advisory, transactional and financial and other interests in securities and instruments that may be purchased or sold by the AlternativeInvestment, or in other investment vehicles that may purchase or sell such securities and instruments. These are considerations of which investors in the AlternativeInvestment should be aware. Additional information relating to these conflicts is set forth in the offering materials for the Alternative Investment.Supplemental Risk Disclosure for All Potential Direct and Indirect Investors in Hedge Funds and other private investment funds (collectively, “AlternativeInvestments")In connection with your consideration of an investment in any Alternative Investment, you should be aware of the following risks: Alternative Investments are subject to less regulation than other types of pooled investment vehicles such as mutual funds. Alternative Investments may impose significant fees, including incentive fees that are based upon a percentage of the realized and unrealized gains, and such fees may offset all or a significant portion of such Alternative Investment’s trading profits. An individual’s net returns may differ significantly from actual returns. Alternative Investments are not required to provide periodic pricing or valuation information. Investors may have limited rights with respect to their investments, including limited voting rights and participation in the management of the Alternative Investment. Alternative Investments often engage in leverage and other investment practices that are extremely speculative and involve a high degree of risk. Such practices may increase the volatility of performance and the risk of investment loss, including the loss of the entire amount that is invested. Alternative Investments may purchase instruments that are traded on exchanges located outside the United States that are “principal markets” and are subject to the risk that the counterparty will not perform with respect to contracts. Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up. A loss of principal may occur. Alternative Investments are offered in reliance upon an exemption from registration under the Securities Act of 1933, as amended, for offers and sales of securities that do not involve a public offering. No public or other market is available or will develop. Similarly, interests in an Alternative Investment are highly illiquid and generally are not transferable without the consent of the sponsor, and applicable securities and tax laws will limit transfers. Alternative Investments may themselves invest in instruments that may be highly illiquid and extremely difficult to value. This also may limit your ability to redeem or transfer your investment or delay receipt of redemption or transfer proceeds. Alternative Investments are not required to provide their investors with periodic pricing or valuation information. Alternative Investments may involve complex tax and legal structures and accordingly are only suitable for sophisticated investors. You are urged to consult with your own tax, accounting and legal advisers regarding any investment in any Alternative Investment. Prospective investors should inform themselves as to any applicable legal requirements and taxation and exchange control regulations in the countries of their citizenship, residence or domicile which might be relevant.Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go downas well as up. A loss of principal may occur.Confidentiality: No part of this material may, without GSAM’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributedto any person that is not an employee, officer, director, or authorized agent of the recipient.Index Benchmarks: Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect thededuction of any fees or expenses which would reduce returns. Investors cannot invest directly in indices. The indices referenced herein have been selectedbecause they are well known, easily recognized by investors, and reflect those indices that the Investment Manager believes, in part based on industry practice,provide a suitable benchmark against which to evaluate the investment or broader market described herein. The exclusion of “failed” or closed hedge funds maymean that each index overstates the performance of hedge funds generally.References to market or composite indices, benchmarks or other measures of relative market performance over a specified period of time ("benchmarks") areprovided by Goldman Sachs for your information purposes only. Goldman Sachs does not give any commitment or undertaking that the performance of youraccount(s) will equal, exceed or track any benchmark. Goldman Sachs Hedge Fund Strategies LLC is a U.S. registered investment adviser, is part of Goldman SachsAsset Management and is a wholly owned subsidiary of The Goldman Sachs Group, Inc.The HFRX Indices ("HFRX") are a series of benchmarks of hedge fund industry performance which are engineered to achieve representative performance of a largeruniverse of hedge fund strategies. For additional information please visit: HFR Database © HFR, Inc. 2013, www.hedgefundresearch.comAny reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. A completelist of recommendations is available upon request.This material has been prepared by GSAM and is not a product of Goldman Sachs Global Investment Research. The views and opinions expressed may differ fromthose of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with theirfinancial advisors before buying or selling any securities. This information may not be current and GSAM has no obligation to provide any updates or changes.Some of the information contained herein may have been provided by the manager and Goldman Sachs Hedge Fund Strategies LLC makes no representation as toits accuracy or completeness.Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views andopinions are current as of the date of this presentation and may be subject to change, they should not be construed as investment advice.Source: Bloomberg, Wall Street Journal, Reuters, Financial Times, HFS Research.© 2013. Goldman Sachs. All Rights Reserved. 92257.HFS.OTUGoldman Sachs Asset Management 3 AIMS Hedge Fund Strategies