Hedge funds posted broad gains in October and year-to-date, led by equity long/short and event-driven strategies. Leverage declined slightly while short positions increased 2%. Most regions saw increased equity prices and tightening credit spreads. Earnings exceeded estimates but revenue growth was flat, raising uncertainty around sustained earnings growth. Global earnings forecasts continue to decline.
JPM prime brokerage global hedge fund trends august 2013Brian Shapiro
After gains in most markets in July, hedge funds posted aggregate returns of +1.36% for the month. Equity long/short and event driven strategies performed best, while global macro strategies declined slightly. Gross leverage across all prime brokerage accounts increased from 1.81 to 1.84 as some managers added short exposures despite rising markets. Leverage was above average for some equity-biased strategies but below average for others like multi-strategy funds.
JPM Prime Brokerage Global Hedge Fund Trends September 2013Brian Shapiro
- Hedge funds posted an aggregate loss of -0.73% in August as risk assets sold off broadly due to renewed macro concerns. Event driven strategies fared best with a loss of -0.04% while global macro suffered most with a decline of -1.20%.
- Gross leverage for equity strategies on JPMorgan's prime brokerage platform fell from 1.84 to 1.82 as net exposure declined from 0.78 to 0.74.
- Several large endowments are shifting exposures from hedge funds to long-only strategies in search of isolating alpha generation.
- Global stocks and commodities rallied on dovish comments from the US Federal Reserve about continuing liquidity support. However, the IMF lowered its global growth forecasts.
- In Asia, regional markets gained despite below-expectations China data. China increased quotas for foreign investment and Singapore posted strong growth. Central banks in several countries kept rates unchanged.
- European markets rose despite weak economic news. Credit rating agencies downgraded France and Italy while political uncertainty impacted Portugal. The IMF cut forecasts for the Eurozone and raised them for the UK.
- Comments from the Fed reassured investors in US markets. While consumer confidence fell, budget surplus rose. Central banks in Mexico, Brazil and Canada left rates unchanged,
- Global equity markets declined due to concerns over the tapering of US quantitative easing and rising US bond yields. The MSCI AC World Index fell 1.43% on losses in Japan and emerging markets.
- In Asia, Japanese markets saw sharp falls while Chinese and Philippine economic data was relatively strong. The Bank of Thailand cut interest rates. In Europe, unemployment rose in southern countries while data in Switzerland, Sweden and the UK was ahead of expectations.
- US housing and consumer confidence data was positive but equity markets fell for the second week. In Latin America, central banks in Canada and Colombia left rates unchanged while Brazil raised rates and had weak GDP growth.
- Global equity markets saw modest gains overall while bond yields rose slightly as economic data pointed to continued recovery in major developed economies.
- In Asia, Chinese and South Korean stocks rose on policy support measures, while Japanese stocks fell due to yen strengthening. US stocks were mixed with tech gains and economic data supporting recovery.
- In Europe, stock indices diverged as some PMIs and business surveys improved, while UK GDP growth was solid. Central banks in Hungary and Turkey adjusted rates.
Summary
Despite pockets of strength, stocks remain in consolidation mode
Elevated volatility of first half unlikely to ebb in second half
Sentiment at mid-year shows optimism and elevated expectations
Second-half pullback could provide strong foundation for continuation of cyclical rally
Prudent approach to bond investing part 2Paul Escobar
The document summarizes the risks of bond investing in the current market environment. It notes that while bonds have historically provided stable returns, bond prices can decline when interest rates rise. A 3% increase in rates could result in a 12.7% total loss for bond funds. However, bonds continue to play an important role in diversifying equity risk in balanced portfolios. Their low correlations to stocks mean they do not react similarly to events that cause stock market declines. The document advocates maintaining balanced exposure to bonds for their diversification benefits and higher long-term yields, despite short-term volatility from rising rates.
The document provides a quarterly review and outlook from Eastgate Advisors. It summarizes key economic indicators, index returns, and Eastgate's portfolio performance for the quarter. It then analyzes factors affecting returns, discusses risks, and outlines Eastgate's strategic and tactical outlook over the next 1-3 and 3-5 years, respectively. They expect mid-single digit returns for global equities but lower returns for bonds given rising interest rates and continued low global growth and inflation.
JPM prime brokerage global hedge fund trends august 2013Brian Shapiro
After gains in most markets in July, hedge funds posted aggregate returns of +1.36% for the month. Equity long/short and event driven strategies performed best, while global macro strategies declined slightly. Gross leverage across all prime brokerage accounts increased from 1.81 to 1.84 as some managers added short exposures despite rising markets. Leverage was above average for some equity-biased strategies but below average for others like multi-strategy funds.
JPM Prime Brokerage Global Hedge Fund Trends September 2013Brian Shapiro
- Hedge funds posted an aggregate loss of -0.73% in August as risk assets sold off broadly due to renewed macro concerns. Event driven strategies fared best with a loss of -0.04% while global macro suffered most with a decline of -1.20%.
- Gross leverage for equity strategies on JPMorgan's prime brokerage platform fell from 1.84 to 1.82 as net exposure declined from 0.78 to 0.74.
- Several large endowments are shifting exposures from hedge funds to long-only strategies in search of isolating alpha generation.
- Global stocks and commodities rallied on dovish comments from the US Federal Reserve about continuing liquidity support. However, the IMF lowered its global growth forecasts.
- In Asia, regional markets gained despite below-expectations China data. China increased quotas for foreign investment and Singapore posted strong growth. Central banks in several countries kept rates unchanged.
- European markets rose despite weak economic news. Credit rating agencies downgraded France and Italy while political uncertainty impacted Portugal. The IMF cut forecasts for the Eurozone and raised them for the UK.
- Comments from the Fed reassured investors in US markets. While consumer confidence fell, budget surplus rose. Central banks in Mexico, Brazil and Canada left rates unchanged,
- Global equity markets declined due to concerns over the tapering of US quantitative easing and rising US bond yields. The MSCI AC World Index fell 1.43% on losses in Japan and emerging markets.
- In Asia, Japanese markets saw sharp falls while Chinese and Philippine economic data was relatively strong. The Bank of Thailand cut interest rates. In Europe, unemployment rose in southern countries while data in Switzerland, Sweden and the UK was ahead of expectations.
- US housing and consumer confidence data was positive but equity markets fell for the second week. In Latin America, central banks in Canada and Colombia left rates unchanged while Brazil raised rates and had weak GDP growth.
- Global equity markets saw modest gains overall while bond yields rose slightly as economic data pointed to continued recovery in major developed economies.
- In Asia, Chinese and South Korean stocks rose on policy support measures, while Japanese stocks fell due to yen strengthening. US stocks were mixed with tech gains and economic data supporting recovery.
- In Europe, stock indices diverged as some PMIs and business surveys improved, while UK GDP growth was solid. Central banks in Hungary and Turkey adjusted rates.
Summary
Despite pockets of strength, stocks remain in consolidation mode
Elevated volatility of first half unlikely to ebb in second half
Sentiment at mid-year shows optimism and elevated expectations
Second-half pullback could provide strong foundation for continuation of cyclical rally
Prudent approach to bond investing part 2Paul Escobar
The document summarizes the risks of bond investing in the current market environment. It notes that while bonds have historically provided stable returns, bond prices can decline when interest rates rise. A 3% increase in rates could result in a 12.7% total loss for bond funds. However, bonds continue to play an important role in diversifying equity risk in balanced portfolios. Their low correlations to stocks mean they do not react similarly to events that cause stock market declines. The document advocates maintaining balanced exposure to bonds for their diversification benefits and higher long-term yields, despite short-term volatility from rising rates.
The document provides a quarterly review and outlook from Eastgate Advisors. It summarizes key economic indicators, index returns, and Eastgate's portfolio performance for the quarter. It then analyzes factors affecting returns, discusses risks, and outlines Eastgate's strategic and tactical outlook over the next 1-3 and 3-5 years, respectively. They expect mid-single digit returns for global equities but lower returns for bonds given rising interest rates and continued low global growth and inflation.
The document provides an asset allocation and regional equity strategy from Credit Suisse First Boston (CSFB). Key points:
1) CSFB raises its tactical equity weighting from 5% underweight to 2% underweight, citing concerns around peaking economic momentum, excess liquidity, rising interest rates, and extended profit levels.
2) The most preferred region is Continental Europe due to late economic cycle, attractive valuations, and historical outperformance during Fed tightening. The UK weighting is increased to benchmark.
3) Bond weightings are reduced to 5% underweight due to inflation risks, with a house view for higher global and US GDP growth in 2004-2005.
The document recommends swapping a Pimco bond for a Clear Channel Holdings bond. It analyzes both bonds and predicts a 25 basis point decline in interest rates. Clear Channel's bond has a longer duration and maturity, higher yield, and is expected to decrease 44 basis points more than Pimco based on its correlations with treasury yields and stock market performance. The swap would increase the portfolio's duration and expected return.
- Global stocks rose this week as positive corporate earnings and hopes of continued loose monetary policy lifted sentiment. Developed markets outperformed emerging markets.
- In Asia, Chinese and Indonesian stocks declined while Japan's consumer prices fell and its economic growth projections were lifted. Australia will invest in Chinese bonds.
- In Europe, weak economic data boosted rate cut expectations, helping markets rally. Unemployment in Spain jumped while UK GDP growth was 0.3%.
- US stocks gained on positive earnings and housing data, though consumer sentiment declined and durable goods orders fell. GDP growth accelerated to 2.5%.
The document discusses why the author remains neutral on equities. Key points include:
1. Equities still look attractive relative to bonds, as the earnings yield is close to the bottom of its 20-year range compared to real corporate bond yields.
2. The author's dividend discount model estimates the current US equity risk premium is 3.8%, slightly above the warranted risk premium of 3.5% based on current credit spreads, volatility, and macroeconomic indicators.
3. Sentiment indicators are mixed, with bears pointing to lower highs and lows recently while bulls point to still attractive valuations.
The author maintains a neutral stance on equities and benchmarks bonds, while favoring
Duff & Phelps' Capital Markets Insights - Spring 2018 report states that leveraging costs and structures showed signs of increasing volatility in the first quarter of 2018, as markets reacted to rising economic growth, inflation concerns and trade tensions. Read the report for more detail.
2013’s Top 10 Lessons for Investors from LPL Financial ResearchJP Marketing | NE
Each year that passes contains some wisdom for investors, but along with that wisdom can be some folly. 2013 was a year that bestowed an abundance of each on investors.
HIGHLIGHTS: The top 10 lessons of 2013 for investors need to be put into two categories: those that investors can take to heart as sound wisdom for the year to come, and those they should try to forget as they prepare for 2014.
This document discusses volatility and provides strategies for managing risk. It begins by stating that moderate volatility is healthy for financial markets as it separates strong from weak investments. The document then discusses three components needed for a well-functioning financial system: cognitive diversity among investors, full disclosure of information, and rewards/penalties for correct/incorrect views. It suggests investors should focus on owning businesses rather than reacting to market fluctuations, and construct diversified portfolios that are not overly correlated with any single index. Strategies discussed for managing risk include owning a variety of assets, investing globally for currency exposure benefits, and focusing on long-term goals rather than short-term volatility.
The document provides a quarterly review by Seaport Investment Management. It summarizes the volatile market conditions in Q1 2016, with global equities rebounding from losses to end barely positive. It discusses ongoing economic slowing and downward revisions to growth forecasts. Seaport's portfolio returned 2.2% in Q1 through a defensive structure that has buffered volatility while providing stable income. The portfolio remains defensively positioned across asset classes like equity, credit, and mortgage to balance upside potential with downside protection.
- Global equity markets stabilized as comments from European central banks supported an accommodative monetary policy stance. However, emerging markets underperformed developed markets.
- In the US, a stronger-than-expected jobs report suggested the Fed will taper asset purchases later this year, while in Europe, both the ECB and BoE kept rates unchanged and signaled easy monetary policies.
- In Asia, Chinese stocks rallied as liquidity concerns eased, while markets in South Korea and Taiwan fell; manufacturing PMIs in China were lackluster.
Volatility returned to the markets as the S&P 500 fell 2% for the week due to concerns over the European debt crisis and slowing growth in China. Spain became the latest problem country in Europe, while China's economy expanded at its weakest pace in over three years. Additionally, weak earnings reports from several U.S. banks led to weakness in financial stocks. Conflicting economic data from the U.S. also contributed to uncertainty and market swings. The "quitters" indicator from the JOLTS report provided a positive signal about consumer confidence, despite a disappointing jobs report and decline in consumer sentiment surveys.
- Global equity markets declined due to concerns about the withdrawal of monetary stimulus and weak economic data from China. Bond yields rose on signals from the Fed that it may reduce bond purchases if the economy strengthens.
- In India, weak global sentiment and mixed corporate earnings led equity markets to decline, with mid and small cap stocks falling more than large caps. Most sectors declined except for technology. Bond yields were mixed with the 10-year yield falling.
- The Indian rupee weakened against the dollar while the yen and Swiss franc strengthened as safe haven assets amid increased global uncertainty.
The document provides an economic and market review for Q1 2009. It summarizes key economic indicators such as GDP, inflation, unemployment and housing prices. It also reviews the performance of major asset classes and indexes in 2008. Nearly all asset classes lost money last year except investment-grade fixed income. The S&P 500 fell over 30% while small cap and international markets declined over 35%.
- Global equity markets rose in response to the Fed's dovish tapering announcement and positive economic data, while bond yields increased. Commodity prices also climbed.
- Regional markets were mixed, with European stocks gaining on positive economic news but Asian markets underperforming. Chinese equities declined due to cash crunch concerns.
- In India, equity markets ended higher helped by strong foreign flows and the RBI's decision to keep rates on hold. Bond yields rose more at the longer end of the curve which flattened. The RBI expressed inflation concerns but expects price pressures to ease in coming months.
The document provides disclosures and sources for several exhibits. Exhibit 1 discloses trading data sources for world equity trading volumes. Exhibit 2 describes the mutual fund sample and methodology used to determine "winner" funds that outperformed benchmarks. Exhibit 3 explains how the analysis was conducted to determine the percentage of top-ranked funds that maintained their ranking in subsequent years. The source for Exhibits 2 and 3 is also provided.
- Global equity markets rose as major central banks eased monetary policy, pushing bond yields up. The Japanese yen weakened significantly against other currencies.
- In Asia, Japanese and Malaysian markets rose sharply while South Korea fell. Central banks in Australia, Korea, Vietnam, and Sri Lanka cut interest rates.
- European markets rose led by Germany on positive economic data. The ECB revised eurozone growth forecasts up. Poland cut rates and the EBRD cut growth forecasts for Central and Eastern Europe.
- US markets hit new highs on positive economic data while Latin American markets fell. Mexico announced financial reforms after an industrial production decline.
- US economic growth is expected to accelerate to over 3% in the coming years, helping boost stock prices and profits. This is unlike other forecasters who predicted too early an acceleration.
- Long-term Treasury bonds are expected to underperform due to rising interest rates, making them unattractive investments. The 10-year Treasury yield is projected to reach 3-4% in the next 3 years.
- While the US economy looks strong now, concerns are raised about the risks of the Federal Reserve raising interest rates too quickly by 2018, which could cause a recession. Careful monetary policy will be needed in the coming years.
The investment philosophy focuses on efficient market investing through portfolio design and implementation that targets dimensions of higher expected returns like value, size, and profitability. It believes prices reflect all available information and aims to add value not by forecasting but by pursuing risk premia in a low-cost, diversified portfolio. Traditional active management often relies on forecasting and generates higher costs without consistent outperformance, while index funds provide little flexibility.
- Global markets were mixed as political uncertainty in the US raised concerns about a potential government debt default. Emerging markets outperformed as hopes grew that the US issues could delay Fed tapering.
- In Asia, Japanese equities declined on a stronger yen while other markets gained. China's manufacturing and services PMIs rose. Japan raised its sales tax and unveiled a stimulus package.
- European markets were weighed down by US budget concerns, though regional data was positive. The ECB left rates unchanged but signaled a dovish stance.
- US stocks seesawed as debt worries offset good economic data. Brazil stocks fell on a credit downgrade while Canada also declined due to US concerns.
« Market Perspectives » est notre revue mensuelle des marchés. Elle présente de la façon la plus synthétique possible :
- notre analyse des principaux faits marquants et indicateurs macro susceptibles de dessiner les marchés sur le mois.
- notre vision sur les différentes classes d’actifs
Cette revue sera continument enrichie avec nos indicateurs quantitatifs.
La plupart de nos analyses sont disponibles sur www.finlightresearch.com
Our monthly publication “Market Perspectives” presents a synthetic view of all the asset classes we cover.
The report is composed of six sections covering Macro, Equities, FI & credit, FX, Commodities and Alternatives.
Each section is preceded by a summary of our views on the related asset class.
Most of our publications are available on our web site www.finlightresearch.com
Pursuing a Better Investment Experience with Capital AssociatesRobUgiansky
This document outlines 10 key principles for improving the odds of investment success:
1) Embrace market pricing and the information incorporated into prices.
2) Don't try to outguess the market through stock picking or market timing as most funds do not outperform their benchmarks.
3) Resist chasing past performance as it does not predict future returns.
4) Let markets work for you through long-term investing as this has rewarded investors over time.
Rodman renshaw life sciences conference update 5 11-12DailyDoseEquities
Rodman & Renshaw presents a report in conjuction with Pharm3r about a data-mining project to crowd source opinions and in interest in new drugs on Twitter.
The document provides an asset allocation and regional equity strategy from Credit Suisse First Boston (CSFB). Key points:
1) CSFB raises its tactical equity weighting from 5% underweight to 2% underweight, citing concerns around peaking economic momentum, excess liquidity, rising interest rates, and extended profit levels.
2) The most preferred region is Continental Europe due to late economic cycle, attractive valuations, and historical outperformance during Fed tightening. The UK weighting is increased to benchmark.
3) Bond weightings are reduced to 5% underweight due to inflation risks, with a house view for higher global and US GDP growth in 2004-2005.
The document recommends swapping a Pimco bond for a Clear Channel Holdings bond. It analyzes both bonds and predicts a 25 basis point decline in interest rates. Clear Channel's bond has a longer duration and maturity, higher yield, and is expected to decrease 44 basis points more than Pimco based on its correlations with treasury yields and stock market performance. The swap would increase the portfolio's duration and expected return.
- Global stocks rose this week as positive corporate earnings and hopes of continued loose monetary policy lifted sentiment. Developed markets outperformed emerging markets.
- In Asia, Chinese and Indonesian stocks declined while Japan's consumer prices fell and its economic growth projections were lifted. Australia will invest in Chinese bonds.
- In Europe, weak economic data boosted rate cut expectations, helping markets rally. Unemployment in Spain jumped while UK GDP growth was 0.3%.
- US stocks gained on positive earnings and housing data, though consumer sentiment declined and durable goods orders fell. GDP growth accelerated to 2.5%.
The document discusses why the author remains neutral on equities. Key points include:
1. Equities still look attractive relative to bonds, as the earnings yield is close to the bottom of its 20-year range compared to real corporate bond yields.
2. The author's dividend discount model estimates the current US equity risk premium is 3.8%, slightly above the warranted risk premium of 3.5% based on current credit spreads, volatility, and macroeconomic indicators.
3. Sentiment indicators are mixed, with bears pointing to lower highs and lows recently while bulls point to still attractive valuations.
The author maintains a neutral stance on equities and benchmarks bonds, while favoring
Duff & Phelps' Capital Markets Insights - Spring 2018 report states that leveraging costs and structures showed signs of increasing volatility in the first quarter of 2018, as markets reacted to rising economic growth, inflation concerns and trade tensions. Read the report for more detail.
2013’s Top 10 Lessons for Investors from LPL Financial ResearchJP Marketing | NE
Each year that passes contains some wisdom for investors, but along with that wisdom can be some folly. 2013 was a year that bestowed an abundance of each on investors.
HIGHLIGHTS: The top 10 lessons of 2013 for investors need to be put into two categories: those that investors can take to heart as sound wisdom for the year to come, and those they should try to forget as they prepare for 2014.
This document discusses volatility and provides strategies for managing risk. It begins by stating that moderate volatility is healthy for financial markets as it separates strong from weak investments. The document then discusses three components needed for a well-functioning financial system: cognitive diversity among investors, full disclosure of information, and rewards/penalties for correct/incorrect views. It suggests investors should focus on owning businesses rather than reacting to market fluctuations, and construct diversified portfolios that are not overly correlated with any single index. Strategies discussed for managing risk include owning a variety of assets, investing globally for currency exposure benefits, and focusing on long-term goals rather than short-term volatility.
The document provides a quarterly review by Seaport Investment Management. It summarizes the volatile market conditions in Q1 2016, with global equities rebounding from losses to end barely positive. It discusses ongoing economic slowing and downward revisions to growth forecasts. Seaport's portfolio returned 2.2% in Q1 through a defensive structure that has buffered volatility while providing stable income. The portfolio remains defensively positioned across asset classes like equity, credit, and mortgage to balance upside potential with downside protection.
- Global equity markets stabilized as comments from European central banks supported an accommodative monetary policy stance. However, emerging markets underperformed developed markets.
- In the US, a stronger-than-expected jobs report suggested the Fed will taper asset purchases later this year, while in Europe, both the ECB and BoE kept rates unchanged and signaled easy monetary policies.
- In Asia, Chinese stocks rallied as liquidity concerns eased, while markets in South Korea and Taiwan fell; manufacturing PMIs in China were lackluster.
Volatility returned to the markets as the S&P 500 fell 2% for the week due to concerns over the European debt crisis and slowing growth in China. Spain became the latest problem country in Europe, while China's economy expanded at its weakest pace in over three years. Additionally, weak earnings reports from several U.S. banks led to weakness in financial stocks. Conflicting economic data from the U.S. also contributed to uncertainty and market swings. The "quitters" indicator from the JOLTS report provided a positive signal about consumer confidence, despite a disappointing jobs report and decline in consumer sentiment surveys.
- Global equity markets declined due to concerns about the withdrawal of monetary stimulus and weak economic data from China. Bond yields rose on signals from the Fed that it may reduce bond purchases if the economy strengthens.
- In India, weak global sentiment and mixed corporate earnings led equity markets to decline, with mid and small cap stocks falling more than large caps. Most sectors declined except for technology. Bond yields were mixed with the 10-year yield falling.
- The Indian rupee weakened against the dollar while the yen and Swiss franc strengthened as safe haven assets amid increased global uncertainty.
The document provides an economic and market review for Q1 2009. It summarizes key economic indicators such as GDP, inflation, unemployment and housing prices. It also reviews the performance of major asset classes and indexes in 2008. Nearly all asset classes lost money last year except investment-grade fixed income. The S&P 500 fell over 30% while small cap and international markets declined over 35%.
- Global equity markets rose in response to the Fed's dovish tapering announcement and positive economic data, while bond yields increased. Commodity prices also climbed.
- Regional markets were mixed, with European stocks gaining on positive economic news but Asian markets underperforming. Chinese equities declined due to cash crunch concerns.
- In India, equity markets ended higher helped by strong foreign flows and the RBI's decision to keep rates on hold. Bond yields rose more at the longer end of the curve which flattened. The RBI expressed inflation concerns but expects price pressures to ease in coming months.
The document provides disclosures and sources for several exhibits. Exhibit 1 discloses trading data sources for world equity trading volumes. Exhibit 2 describes the mutual fund sample and methodology used to determine "winner" funds that outperformed benchmarks. Exhibit 3 explains how the analysis was conducted to determine the percentage of top-ranked funds that maintained their ranking in subsequent years. The source for Exhibits 2 and 3 is also provided.
- Global equity markets rose as major central banks eased monetary policy, pushing bond yields up. The Japanese yen weakened significantly against other currencies.
- In Asia, Japanese and Malaysian markets rose sharply while South Korea fell. Central banks in Australia, Korea, Vietnam, and Sri Lanka cut interest rates.
- European markets rose led by Germany on positive economic data. The ECB revised eurozone growth forecasts up. Poland cut rates and the EBRD cut growth forecasts for Central and Eastern Europe.
- US markets hit new highs on positive economic data while Latin American markets fell. Mexico announced financial reforms after an industrial production decline.
- US economic growth is expected to accelerate to over 3% in the coming years, helping boost stock prices and profits. This is unlike other forecasters who predicted too early an acceleration.
- Long-term Treasury bonds are expected to underperform due to rising interest rates, making them unattractive investments. The 10-year Treasury yield is projected to reach 3-4% in the next 3 years.
- While the US economy looks strong now, concerns are raised about the risks of the Federal Reserve raising interest rates too quickly by 2018, which could cause a recession. Careful monetary policy will be needed in the coming years.
The investment philosophy focuses on efficient market investing through portfolio design and implementation that targets dimensions of higher expected returns like value, size, and profitability. It believes prices reflect all available information and aims to add value not by forecasting but by pursuing risk premia in a low-cost, diversified portfolio. Traditional active management often relies on forecasting and generates higher costs without consistent outperformance, while index funds provide little flexibility.
- Global markets were mixed as political uncertainty in the US raised concerns about a potential government debt default. Emerging markets outperformed as hopes grew that the US issues could delay Fed tapering.
- In Asia, Japanese equities declined on a stronger yen while other markets gained. China's manufacturing and services PMIs rose. Japan raised its sales tax and unveiled a stimulus package.
- European markets were weighed down by US budget concerns, though regional data was positive. The ECB left rates unchanged but signaled a dovish stance.
- US stocks seesawed as debt worries offset good economic data. Brazil stocks fell on a credit downgrade while Canada also declined due to US concerns.
« Market Perspectives » est notre revue mensuelle des marchés. Elle présente de la façon la plus synthétique possible :
- notre analyse des principaux faits marquants et indicateurs macro susceptibles de dessiner les marchés sur le mois.
- notre vision sur les différentes classes d’actifs
Cette revue sera continument enrichie avec nos indicateurs quantitatifs.
La plupart de nos analyses sont disponibles sur www.finlightresearch.com
Our monthly publication “Market Perspectives” presents a synthetic view of all the asset classes we cover.
The report is composed of six sections covering Macro, Equities, FI & credit, FX, Commodities and Alternatives.
Each section is preceded by a summary of our views on the related asset class.
Most of our publications are available on our web site www.finlightresearch.com
Pursuing a Better Investment Experience with Capital AssociatesRobUgiansky
This document outlines 10 key principles for improving the odds of investment success:
1) Embrace market pricing and the information incorporated into prices.
2) Don't try to outguess the market through stock picking or market timing as most funds do not outperform their benchmarks.
3) Resist chasing past performance as it does not predict future returns.
4) Let markets work for you through long-term investing as this has rewarded investors over time.
Rodman renshaw life sciences conference update 5 11-12DailyDoseEquities
Rodman & Renshaw presents a report in conjuction with Pharm3r about a data-mining project to crowd source opinions and in interest in new drugs on Twitter.
CyrusOne reported strong 4Q results that beat estimates, with revenue up 1.5% quarter-over-quarter and 20.2% year-over-year. Full year results showed growth of 25.6% in revenue, 22.1% in EBITDA, 42.2% in FFO, and 51.3% in AFFO. Guidance for 2015 implies mid-point revenue growth of 14.0% and EBITDA and FFO growth of around 12%. The company continues to execute well and achieve above-market growth while trading at a discount to peers. Leasing was solid in 4Q and for the full year, up 33.3% year-over-year
CyrusOne reported solid 4Q14 results with revenue and FFO slightly ahead of expectations. Management provided an overview of why lower oil prices are not expected to materially impact the business. Notably, CyrusOne increased its dividend by 50% to an annual yield of 4.2%, ahead of expectations and pointing to a focus on FFO growth and profitability over top-line growth. While 2015 guidance was below estimates, management appears to be conservative and trends indicate performance towards the mid-point is likely.
Omeros announced positive results from its Phase 3 clinical trial of OMS302. The trial achieved its primary endpoint of maintaining pupil dilation during eye surgery, as well as reducing postoperative pain. Based on these results, analysts are maintaining their Market Outperform rating for Omeros and raising their target price per share from $13 to $16. The positive data supports Omeros' plans to submit marketing applications for OMS302 in the US and Europe in the first half of 2013.
Crystal Research AtheroNova Executive Overview_6.6.12DailyDoseEquities
AtheroNova is a biotechnology company developing compounds to dissolve atherosclerotic plaque in arteries. Its lead candidate, AHRO-001, uses a bile salt to significantly reduce plaque formation and severity. Following a pre-IND meeting with the FDA, the company is preparing for AHRO-001 to enter Phase I human clinical trials. AtheroNova expects to develop multiple applications for its compounds in areas like obesity, hypertension, and diabetes. The company's management has experience in pharmaceutical projects and its scientific advisors include members from the Cleveland Clinic.
JPM Prime Brokerage Global Hedge Fund Trends May 2013.pdfBrian Shapiro
- Hedge funds posted positive returns in April as equity markets increased. Global macro and relative value strategies performed strongest.
- Gross leverage across hedge funds rose slightly from 1.88 to 1.89 as risk appetite increased. Net exposure and leverage also increased for equity funds.
- Sector exposures shifted as long positions grew in Financials, Consumer Cyclicals, and Technology, while shorting declined in Non-sector ETFs and Basic Materials.
- Emerging markets have experienced weaker economic growth compared to developed markets in 2013.
- Emerging market equities have significantly underperformed developed market equities since 2010, with the underperformance accumulating prior to recent tapering talk.
- Within emerging markets, BRIC countries like Brazil, Russia, India, and China have particularly underperformed the broader emerging market universe.
The market volatility of late summer seemed to fade as markets hit new highs in November due to optimism around a trade deal and accommodative monetary policy. While overall earnings declined slightly in Q3 due to weaknesses in energy, materials, and tech, most companies still saw sales growth and expressed a positive outlook. Larger companies have seen stronger earnings growth. The Treasury yield curve flattened again in November after widening for months, which bears watching given past recessions have followed yield curve inversions. Most analysts anticipate an earnings recovery in coming quarters but will monitor trends closely given high market valuations.
The document provides an overview of recent market perspectives and concerns for November 2018. It notes that while markets have dipped recently, the overall economic environment remains strong with GDP and earnings growth steady. However, investors are weighing concerns around the pace of interest rate hikes, global trade tensions, and the ability of companies to sustain high earnings growth. The document concludes that the investment environment remains modestly favorable, but market participants are closely monitoring conditions.
Global equity markets regained stability and gained over the week as positive economic data from Europe eased investor concerns. In Asia, markets were mixed with Japan, Hong Kong, and South Korea declining while China gained. In Europe, good earnings and economic data boosted stocks despite declines in some countries. US stocks rose as soft economic data eased rate hike fears. In India, markets gained on improved global sentiment despite some sectors declining, while bond yields fell and the rupee strengthened.
Elevation Wealth Management's quarterly review of the investment, financial, and economic landscape as of September 30, 2013. Key take-aways and useful insights for average and sophisticated investors alike.
Olympic Wealth Fund Marathon Class 'A' April Fact sheetRichard Baxter
The Marathon Freedom Fund SP is a global equity fund that seeks capital growth through focus investing in well-run businesses with competitive advantages. The fund aims to provide balanced growth and is medium risk. Since its launch in May 2013, a $10,000 investment is now worth $23,592, representing a return of 123.6%. In April 2015, the fund added to its position in Gilead Sciences, a leading biopharmaceutical company. The fund manager expects a cautious outlook in May and June as these are typically seasonal selling months.
JPM Prime Brokerage 2014 Institutional Investor Sentiments ReportBrian Shapiro
The document summarizes the key findings of J.P. Morgan's 2014 Investor Sentiments Report, which surveyed nearly 300 institutional investors about their hedge fund investment activity and outlook. Some of the main points include:
- Event driven and long/short equity strategies were most popular in 2013, while macro and managed futures strategies saw redemptions.
- Pension funds represented the fastest growing group of hedge fund investors, increasing allocations the most of any sector.
- Most investors plan to maintain or increase hedge fund investments in 2014 and are more open to investing in new hedge fund launches and longer-lockup "hybrid" funds.
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JPM Prime Brokerage Global Hedge Fund Trends November 2013
1. J.P. Morgan Prime Brokerage Global Hedge Fund Trends
November 13, 2013
Executive Summary
Along with most other risk assets, hedge funds posted broadbased gains in October, rising +1.48% in the aggregate and
+7.19% year-to-date, the best such performance since 2009.
All of the major hedge fund strategies delivered positive
returns in October, with equity long short (+1.80%) and event
driven (+1.50%) strategies leading.
Figure 1: October 2013 performance
HFRI and Market Indices. Monthly Returns
5.0%
4.0%
3.0%
2.0%
Leverage
For all accounts in the Prime Brokerage portfolio, gross
leverage 1 declined from 1.83 to 1.82 (-0.37%) in October. Net
exposure 2 for equity-biased strategies decreased from 0.78 to
0.74 (-4.78%). Net leverage declined from 0.66 to 0.65 (2.12%).
Securities Lending
The U.S Prime Brokerage portfolio experienced the largest
shorting in single names in October of any single month in
2013. The fixed income book was net shorted for a second
consecutive month. In Europe, long/short hedge funds
expressed a net long bias in Financial and Consumer, Noncyclical names while Industrials were net shorted. In Asia,
earnings season resulted in heighted volumes, though activity
trailed off towards month-end as clients closed positions to
avoid liquidity traps. Short balances ended October up +2%.
Institutional Investor Sentiment
The Capital Introduction Group (CIG) traveled to Boston
where consultants, endowments and funds of hedge funds
(FoFs) dominate the hedge fund investor community. Several
consultants have started to consider managers further down
the AUM spectrum. Among European investors, CIG is
observing increased interest in alternative UCITS. CIG has
also observed an uptick in investor interest in Asia Pacific
strategies.
1.0%
0.0%
-1.0%
HF Index Equity
Hedge
Event
Driven
Macro Rel Value S&P 500 Fixed CMDTY
Income
USD
Credit
-2.0%
Source: Bloomberg, Hedge Fund Research
Table 1: Performance of hedge fund strategies and asset classes
HFRI and Market Indices 3
Year-to-Date
7.19%
11.27%
10.03%
-0.90%
5.93%
25.30%
-2.41%
-3.72%
0.53%
-0.49%
Oct-13
1.48%
1.80%
1.50%
1.09%
1.19%
4.60%
0.90%
-1.56%
-0.03%
1.58%
HF Index
Equity Hedge
Event Driven
Macro
Relative Value
S&P 500
Fixed Income
CMDTY
USD
Credit
Source: Bloomberg, Hedge Fund Research
Figure 2: Hedge fund beta to equities
Rolling 21-day beta of HFRX equal-weighted index returns to the S&P 500 Total Return
Index
0.19
0.17
3,100
0.15
3,000
0.13
2,900
0.11
2,800
0.09
2,700
0.07
2,600
0.05
2,500
0.03
Market Perspectives
There was a considerable degree of uncertainty leading up to
the October FOMC meeting. Coming out of the meeting, the
Federal Reserve opted not to change the pace of its bond
buying program or its interest rate forward guidance. In its
post-meeting statement, the Federal Reserve indicated that the
FOMC remains biased towards reigning in the pace of the
program at coming meetings. Notably, the statement belied
little concern about the recent softening in growth indicators.
3,200
2,400
0.01
Oct-12
Dec-12
Feb-13
Apr-13
Equity Beta (LHS)
Jun-13
Aug-13
Oct-13
2,300
S&P 500 Total Return Index (RHS)
Source: Bloomberg, Hedge Fund Research
1
Gross leverage is the total market value of long and short positions divided by clients'
equity in J.P. Morgan’s Prime Brokerage portfolio.
2
Calculated for Equity Long Short and Market Neutral funds on J.P. Morgan’s Prime
Brokerage platform only. Net leverage is defined as the market value of long positions
(LMV) minus the market value of short positions (SMV), divided by clients’ equity (Eq).
Net exposure is defined as the ratio of LMV and SMV, minus one.
3
Market indices from Bloomberg are as follows: S&P 500 (SPTR Index), Fixed Income
(JPMGGLBL Index), CMDTY (SPGSCI Index), USD (DXY Index), and Credit (JULIR
Index).
1
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.
2. Prime Brokerage Global Hedge Fund Trends – Performance, Leverage, and Risk Exposures
This section presents a summary of the changes that we have observed in leverage and sector exposures across the range of hedge funds that we
work with. The confidentiality of our clients’ positions is important to us and as such this information has been aggregated and displayed in an
anonymous manner in an effort to mitigate the risk of revealing or alluding to any one fund’s exposures. Information may be excluded due to the
perceived risk of revealing sensitive information. The information discussed is specific to activities on J.P. Morgan’s books, and may not represent
total client activity. These numbers should only be viewed as representative observations.
Market Overview 4
Although the U.S. federal government shutdown and debt
ceiling debate commandeered headlines in October, risk
assets rallied broadly on the month, suggesting that markets
have to some extent grown numb to the gyrations of politics
and policy, which seem to have become the rule rather than
the exception.
Fundamentally driven investors benefitted from declining
cross-asset correlation and volatility. From October 7 through
month-end, the Chicago Board Options Exchange S&P 500
Implied Correlation Index fell -28.21% to 41.55 and reached
36.07 on October 18, the lowest level since February 2007.
Similarly, the VIX decreased -17.17% on the month (See
Figure 3).
Figure 3: CBOE S&P 500 Implied Correlation and VIX indices,
October 2013
60
30
28
55
26
24
50
22
45
20
18
40
16
September, as investors are once again seeking yield from
defensive, dividend-paying stocks.
October also ushered in the start of the third quarter earnings
season. As of November 6, 2013, approximately 71% of the
companies that had reported earnings exceeded estimates, the
highest percentage since the first quarter of 2012. 6 Among
such companies, earnings exceeded analysts’ expectations by
an average of +4.88%. Third quarter EPS is tracking J.P.
Morgan’s forecast of $28, with companies in the Materials
sector exceeding analysts’ expectations by the largest margin.
Approximately 76% of companies in the S&P 500 Materials
sector have exceeded third quarter EPS forecasts. Whether
such results are sustainable going forward is an open
question, though. One reason for concern is muted top line
growth. Revenue per share disappointed in both the U.S.,
where it was flat, and in Europe (-1%). 7 Additionally, growth
expectations remain stationary and, although global
manufacturing PMI rose from 51.8 in September to 52.1 in
October, the Markit U.S. PMI fell to a one-year low.
Furthermore, U.S. factory orders declined -0.1% for August.
Estimates had posited growth of +0.3%. Accordingly, global
earnings expectations are continuing to decline (See Figure
4).
14
35
12
30
10
Figure 4: 2013 and 2014 global equity earnings forecasts
32
31
CBOE Implied Correlation Index (LHS)
VIX (RHS)
Source: Bloomberg
30
29
October was an auspicious month for equities, which reached
new highs yet again. Except for Japan, where the Nikkei
Index declined -0.88%, equity markets in major regions
increased between +3% and +5% month-over-month.
European equities again outperformed; the Euro Stoxx 50
Index rallied +6.04% on the month as compared with +4.46%
for the S&P 500 Index. 5 Defensive sectors slightly
outperformed cyclicals. That pattern is to some degree
symptomatic of the Federal Reserve’s no-taper decision in
4
Hedge fund strategy returns are based on data supplied by Hedge Fund Research.
5
Reference is to the SPX Index, not the SPTR Index, as in Table 1.
28
27
26
25
Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13
2013 MSCI AC World EPS
Jul-13 Aug-13 Sep-13 Oct-13
2014 MSCI AC World EPS
Source: Datastream, J.P. Morgan
6
J.P. Morgan Global Asset Allocation, Global Markets Outlook and Strategy,
November 6, 2013, https://jpmm.com/research/content/GPS-1252799-0.
7
Same as Footnote 6.
2
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.
3. Prime Brokerage Global Hedge Fund Trends – Performance, Leverage, and Risk Exposures
October was also marked by ongoing, across-the-board
tightening of credit spreads. Investment grade bonds returned
+1.6% month-over-month while high-yield bonds (+2.6%)
and loans (+0.8%) also rallied. Leveraged loan spreads fell 0.27% in October and thus are 111 basis points tighter yearto-date. 8
Composite Hedge Fund Performance
Along with most other risk assets, hedge funds posted broadbased gains in October, rising +1.48% in the aggregate and
+7.19% year-to-date, the best such performance since 2009.
All of the major hedge fund strategies delivered positive
returns in October, with equity long short (+1.80%) and event
driven (+1.50%) strategies leading. Global macro gained
+1.09% in the aggregate, the first positive monthly
performance for the strategy since April.
Equity Hedge
October’s gains among equity long short managers were
driven to a strong degree by quantitative directional funds,
which returned +2.70% in the aggregate. Managers benefitted
from exposure to U.S. small cap stocks, large cap U.S.
Consumer Staples names and large cap names in the U.S.
Materials sector. Market neutral funds also delivered positive
returns (+2.08%).
managers
benefitted
from
positioning
in
NYSE/IntercontinentalExchange,
Provident/Sterling
Bancorp, Akorn/Hi-Tech Phamacal, Koch/Molex and
Thermo Fisher/Life Technologies.
Relative Value
Fixed income relative value managers gained +1.19% on the
month, aided yet again by tightening credit spreads and the
continued decline in yields. Year-to-date aggregate returns
now stand at +5.93%. Convertible arbitrage managers were
up, positing aggregate gains of +0.33% on the month.
Global Macro
Global macro strategies were up +1.09% in the aggregate
month-over-month. Managers with emerging markets
exposure (+2.05%), particularly with respect to EM Asia and
Brazil, helped fuel October’s gains. Systematic strategies and
CTAs also contributed to October’s returns, rising +1.41%
month-over-month.
Figure 5: Sector performance (S&P 500 Index), October 2013
8.0%
7.0%
6.0%
5.0%
7.35%
6.13%
5.05%
4.60%
4.0%
4.50%
4.20%
4.11% 4.07%
3.66%
3.15%
3.0%
2.0%
1.0%
0.0%
-1.0%
Source: Bloomberg, Standard & Poor’s
Event Driven
October’s gains by event driven managers mark the fifteenth
consecutive month of positive aggregate gains for the
strategy. Positive performance was fueled largely by activist
and special situations funds, which returned +3.50% and
+1.90%, respectively, month-over-month. Merger arbitrage
8
J.P. Morgan High Yield and Levered Loan Research, Leveraged Loan Market
Monitor, November 1, 2013, https://jpmm.com/research/content/GPS-1248497-0.
3
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.
4. Prime Brokerage Global Hedge Fund Trends – Performance, Leverage, and Risk Exposures
Figure 8: Z-score of gross leverage and the S&P 500 Index
Leverage and Risk Exposures
Gross Leverage
Gross leverage for all accounts in the Prime Brokerage
portfolio declined slightly from 1.83 to 1.82 (-0.37%) in
October (See Figure 6). Gross leverage of levered accounts in
the Prime Brokerage portfolio fell from 2.53 to 2.48 (-1.97%)
(See Figure 7). The decrease in leverage levels amidst the
continued market rally in October suggests that clients are
hesitant to add risk into the rally at current market levels. To
that point, it should be observed that hedge fund beta to
equities decreased noticeably in October (See Figure 2). The
decline is also attributable partly to an increase in client
equity resulting from mark-to-market activity.
Figure 6: Daily gross leverage and the S&P 500 Index
1,800
1.90
1,600
1.85
1,500
1.80
1,400
1.75
Jan-13
Mar-13
May-13
S&P 500 Index (LHS)
Jul-13
0.5
0.0
-0.5
-1.0
-1.5
-2.0
Nov-11 Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13
Difference between gross leverage and S&P 500 Index Z-scores
Source: Bloomberg, J.P. Morgan Prime Brokerage
1.95
1,700
1,300
Nov-12
The Z-score measures how many standard deviations an observation is above or below
the mean
Gross Leverage by Strategy
High Grade Fixed Income, Equity Long Short and
Convertible Arbitrage experienced increases in gross
leverage month-over-month, rising +24.2%, +3.6% and
+3.3%, respectively. At 2.52, High Grade Fixed Income
ended October at a year-to-date high. The remaining
strategies experienced a decrease in gross leverage in
October. Equity Long Short, Convertible Arbitrage, High
Grade Fixed Income and High Yield Fixed Income are
running gross leverage above their two-year average levels.
Sep-13
Figure 9: Gross leverage by strategy
Gross Leverage (RHS)
4
Source: Bloomberg, J.P. Morgan Prime Brokerage
Figure 7: Gross leverage (levered accounts) 5-day moving
average and the S&P 500 Index
1,800
3
2.7
2
1,700
2.6
1
1,600
0
1,500
2.5
Market Neutral Equity Long Multi-Strategy Convertible
Short
Arbitrage
Aug-13
1,400
Sep-13
High Grade
High Yield
Fixed Income Fixed Income
Oct-13
Source: J.P. Morgan Prime Brokerage
1,300
Nov-12
2.4
Jan-13
Mar-13
S&P 500 Index (LHS)
May-13
Jul-13
Sep-13
Gross Leverage (Levered Accounts - RHS)
Source: Bloomberg, J.P. Morgan Prime Brokerage
4
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.
5. Prime Brokerage Global Hedge Fund Trends – Performance, Leverage, and Risk Exposures
Table 2: Gross leverage by strategy
Table 3: Long and short exposures by sector
Average and first quartile calculated for the period of October 2011 to October 2013
Long (Short) exposure by sector as a percentage of total client long (short) exposure in
Prime Brokerage portfolio
First
% Change
Q uartile
3.62
-2.5%
Aug-13
Se p-13
O ct-13
Ave rage
Market Neutral
3.89
3.87
3.78
3.85
Equity Long Short
1.96
2.01
2.09
1.84
1.72
3.6%
Multi-Strategy
1.77
1.76
1.74
1.77
1.74
-0.7%
Convertible Arbitrage
3.72
3.77
3.90
3.75
3.62
3.3%
High Grade Fixed Income
2.22
2.03
2.52
2.46
2.22
24.2%
High Yield Fixed Income
1.42
1.45
1.44
1.26
1.16
-0.9%
PB Portfolio (Levered Accounts)
2.47
2.53
2.48
2.51
2.47
-2.0%
Long exposure
Oct-12
Sep-13
Short exposure
Oct-13
Oct-12
Sep-13
Oct-13
Equity Long Short and Market Neutral funds on the Prime Brokerage platform only.
LMV: Market value of long positions. SMV: Market value of short positions.
Eq: Equity in the clients’ accounts
0.9
0.8
4.6%
5.1%
5.0%
4.6%
15.0%
15.2%
7.2%
6.3%
6.2%
Consumer, Cyclical
10.5%
11.6%
11.8%
9.0%
8.2%
7.7%
15.2%
16.5%
15.3%
11.9%
10.6%
10.2%
Diversified
0.3%
0.3%
0.3%
0.1%
0.0%
0.0%
Energy
8.0%
9.0%
9.3%
5.8%
6.5%
7.0%
Non sector-specific
ETF
3.4%
1.7%
2.1%
16.2%
17.6%
16.9%
Financial
20.0%
16.7%
16.8%
11.2%
8.6%
8.2%
5.9%
6.6%
6.4%
5.9%
7.4%
7.3%
Technology
4.7%
5.0%
4.8%
6.6%
7.2%
6.6%
Utilities
1.5%
1.3%
1.4%
1.6%
1.5%
1.6%
Government
6.5%
7.1%
7.2%
8.9%
8.5%
9.6%
Other
Figure 10: Net exposure and net leverage
4.6%
12.7%
Industrial
Net Exposure and Net Leverage
Net exposure for equity-biased funds fell in October,
decreasing from 0.78 to 0.74 (-4.78%). Net leverage also
declined, falling from 0.66 to 0.65 (-2.12%).
5.0%
Communications
Consumer, Noncyclical
Source: J.P. Morgan Prime Brokerage
Basic Materials
6.3%
4.6%
4.6%
10.6%
12.5%
14.0%
Source: J.P. Morgan Prime Brokerage
0.7
0.6
0.5
0.4
Oct-11
Jan-12
Apr-12
Jul-12
Net Exposure (LMV/SMV)-1
Oct-12
Jan-13
Apr-13
Jul-13
Oct-13
Net Leverage (LMV-SMV)/Eq
Source: J.P. Morgan Prime Brokerage
Sector Exposures
The largest month-over-month increases in the long Prime
Brokerage portfolio were in Non sector-specific ETFs
(+0.4%) and in the Energy sector (+0.3%). The largest
decline was in the Consumer, Non-cyclical sector (-1.2%).
The largest increase in the Prime Brokerage short portfolio
was in the Energy sector (+0.5%). The most substantial
decreases in short exposure occurred in Non sector-specific
ETFs (-0.7%), Technology (-0.6%) and in the Consumer,
Cyclical sector (-0.5%).
The Prime Brokerage portfolio may have become more
bullish on the Communications, Consumer, Cyclical and
Financial sectors, as well as Non sector-specific ETFs, which
experienced month-over-month increases in long exposure
and decreases in short exposure.
5
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.
6. Prime Brokerage Global Hedge Fund Trends – Securities Lending
North America Securities Lending
Equities
During October, the U.S Prime Brokerage portfolio
experienced the largest shorting in single names of any single
month in 2013. While the move was significant, it
nonetheless failed to offset September’s covering activity.
October’s increase in short exposure was driven by singlenames, with heightened flows driven by the third quarter
earnings season. Correspondingly, there was a 30% increase
in gross trading volume in the Prime Brokerage Portfolio
month-over-month. With the exception of Basic Materials,
all sectors were net shorted with Energy and Consumer,
Cyclical as the primary drivers.
ETFs
The U.S. Prime Brokerage ETF book was net covered in
October. IWM (iShares Russell 2000 Index), MDY (SPDR
S&P MidCap 400 ETF) and SPY (SPDR S&P 500 ETF
Trust) experienced significant covering as the market
continued its rally. Equal-weighted S&P Retail XRT (SPDR
S&P Retail ETF) and XOP (SPDR S&P Oil & Gas
Exploration & Production ETF) saw notable covering as
well. IYR (iShares Dow Jones US Real Estate ETF) and
XLE (Energy Select Sector SPDR ETF) experienced some
shorting on the month in contrast to the overall trend. Large
increases in shares outstanding, stemming from a rise in
creations, improved overnight loan liquidity in SPY, MDY
and MSCI EFA (iShares MSCI EAFE Index Fund).
Fixed Income
The U.S. Prime Brokerage fixed income book was net
shorted for a second consecutive month. Shorting was
significant across all fixed income products, including U.S.
Treasuries in the two and five year parts of the curve. The
largest increases on our corporate book were in the
Consumer, Cyclical, Communications and Industrial
sectors. The following cap structures experienced marked
activity on the month: Wind Acquisition Holding (Windim),
NII Capital (NIHD), Cliff Natural Resources (CLF), BonTon Dept Stores (BONT), Energy Future (TXU) and Essar
Steel Algoma (ALGCN). In the convertible bond space, our
book saw considerable short increases with Intl Game
Technology (IGT 3 ¼ 5/1/14), Lam Research Corp. (LRCX
1.25% 05/15/18), Priceline (PCLN .35 6/15/20) and Prologis
LP (PLD 3 ¼ 3/15/15) being names of interest.
Event Driven
•
Applied Materials, Inc. (AMAT) and Tokyo Electron
Limited (8035 JP) announced an agreement to merge in
an all stock deal. The merger was approved by the
boards of both companies and is expected to close in mid
to late 2014. Holders of Tokyo Electron will receive
3.25 shares of the new company for each Tokyo Electron
share. Applied Materials shareholders will receive only 1
share. Borrow in Applied Materials has been active but
remains GC with considerable supply available.
•
American Realty Capital Properties (ARCP) announced
a merger with Cole Real Estate Investments (COLE)
near the end of October. Cole shareholders will have the
option to receive either 1.0929 shares of American
Realty or $13.82 in cash, subject to a 20% proration. The
merger is expected to close in the first half of
2014. While much of the supply on American Realty
was taken down on the day the merger was announced,
rates have since stabilized.
6
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.
7. Prime Brokerage Global Hedge Fund Trends – Securities Lending
Figure 11: Cumulative net activity
Table 5: U.S. securities lending trends by ETFs
Market value change of activity across equities, ETFs, and fixed income
For the month of October 2013
$6.0
5 Day
$4.0
30 Day
Price
Change
Position
Change
(shares)
SPDR S&P 500 ETF TRUST
0.4%
ISHARES RUSSELL 2000
(1.6%)
$2.0
$0.0
-$2.0
ISHARES US REAL ESTATE
ETF
ENERGY SELECT SECTOR
SPDR
SPDR S&P OIL & GAS EXP
& PRODUCTION
-$4.0
-$6.0
-$8.0
Equity
2-Jan
1-Feb
3-Mar
2-Apr
ETF
2-May
Fixed Income
1-Jun
Net Activity
1-Jul
31-Jul
Price
Change
Price
Change
Position
Change
(shares)
1.7%
3.8%
(3.3%)
4.4%
12.2%
(2.6%)
1.2%
(17.3%)
5.5%
(18.7%)
(2.0%)
1.9%
2.2%
12.2%
(1.9%)
66.1%
0.4%
(7.3%)
3.7%
4.3%
5.4%
0.5%
30-Aug
29-Sep
29-Oct
Source: J.P. Morgan Securities Lending
(2.7%)
(4.3%)
3.6%
(29.2%)
12.9%
(21.6%)
POWERSHARES QQQ
TRUST, SERIES 1 (ETF)
-$10.0
-$12.0
90 Day
Position
Change
(shares)
0.6%
16.6%
3.7%
0.1%
9.4%
(6.5%)
INDUSTRIAL SELECT
SECTOR SPDR
0.3%
19.4%
4.2%
29.6%
8.1%
24.2%
(0.2%)
(15.4%)
2.3%
(5.0%)
1.2%
18.3%
(1.0%)
4.2%
2.6%
12.2%
0.1%
(25.0%)
(0.0%)
39.4%
1.4%
70.3%
8.0%
(64.6%)
ISHARES IBOXX HIGH
YIELD CREDIT ETF
FINANCIAL SELECT
SECTOR SPDR
ISHARES MSCI EMERGING
MARK
Figure 12: Rolling 1-month daily short flow
Daily Activity Relative to 30-Day Average (LHS) and S&P 500 Index (RHS)
250%
1,775
200%
1,750
150%
Source: J.P. Morgan Securities Lending
1,725
100%
1,700
50%
1,675
0%
1,650
-50%
1,625
-100%
1,600
-150%
1,575
-200%
-250%
02-Oct
1,550
09-Oct
16-Oct
Net Cover Activity (LHS)
23-Oct
Net Short Activity (LHS)
30-Oct
S&P 500 Index (RHS)
Source: Bloomberg, J.P. Morgan Securities Lending
Table 4: U.S. securities lending trends by sector
For the month of October 2013
5 Day
30 Day
Consumer, Non-cyclical
Price
Change
(0.9%)
Position
Change
(shares)
1.1%
Financial
(1.0%)
Technology
90 Day
Price
Change
(0.0%)
Position
Change
(shares)
2.9%
Price
Change
Position
Change
(shares)
4.2%
(2.0%)
2.0%
2.9%
(0.2%)
2.0%
(6.9%)
0.1%
3.5%
0.6%
2.4%
6.0%
3.0%
Energy
(0.6%)
5.5%
3.3%
9.6%
8.0%
11.0%
Communications
(0.3%)
0.8%
1.5%
0.6%
9.0%
3.7%
Industrial
(1.3%)
1.8%
1.5%
2.5%
6.0%
1.8%
Consumer, Cyclical
(0.4%)
1.3%
0.0%
4.9%
5.0%
(1.3%)
Basic Materials
(0.4%)
1.1%
5.4%
(0.4%)
9.8%
(10.8%)
Utilities
(0.1%)
2.7%
3.2%
0.1%
(1.9%)
(3.4%)
Source: J.P. Morgan Securities Lending
7
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.
8. Prime Brokerage Global Hedge Fund Trends – Securities Lending
International Securities Lending
EMEA
Fundamental and quantitative directional long/short hedge
funds expressed a net long bias in Financial and Consumer,
Non-cyclical names while Industrials were net shorted.
Clients remained bearish on Outotec OYJ (OTE1V FH),
ThromboGenics NV (THR BB) and Royal Imtech NV (IM
NA). K+S AG-REG (SDF GR) experienced short covering
during most of October. Banca Monte dei Paschi (BMPS
IM) remained a tight borrow with the lending pool nearly
100% utilized. Among the top 20 names in Europe, Peugeot
(UG FP), Telecom Italia (TIT IM), Koninklijke Vopak NV
(VPK NA) and Kone OYJ-B (KNEBV FH) saw the largest
percentage increases in shorting month-over-month. Several
of the most crowded shorts in Europe reported third quarter
earnings that caused volatile price reactions. October also
saw the much anticipated IPO of Royal Mail (RMG LN).
Merger and event arbitrage funds were highly active in
October. Several funds initiated long positions in Celesio
(CLS1 GR) after McKesson offered EU23 per share to
acquire the company.
Rights issues traded in
Schmolz+Bickenbach (STLN SW) and Nexans (NEX FP)
and borrow was tight for both names. October also saw share
offerings in Portugal Telecom (PTC LS), Indra Sistemas
(IDR SM) and Abengoa B (ABG/P MC). Deutsche Wohnen
(DWNI GR) (exchange offer) saw limited interest from our
client base.
Convertible bond issuance slowed in October, although there
were issues from NH Hoteles (NHH SM) and from ACS,
which issued bonds convertible into Iberdrola (IBE SM)
ordinaries. There was also continued interest in Nyrstar
(NYR BEN), Alcatel (ALU), Peugeot (UG FP) and Melia
Hotels (MEL SM).
Asia Pacific Ex-Japan
Earnings season resulted in heightened volumes in October,
though activity trailed off towards month-end as clients
closed positions to avoid liquidity traps. Short balances ended
October +2%.
Taiwan
Taiwan saw significant two-way flow in major tech names
due primarily to new Apple product launches. Activity was
especially pronounced for Mediatek Inc. (2454 TT) as
directional funds took profits on longstanding shorts. HTC
Corp. (2498 TT) also experienced heavy activity.
Hong Kong
The coal sector experienced the largest increase in short
interest after several earnings reports came in below
expectations. Yanzhou Coal Mining Co Ltd. (1171 HK) was
down -4.25% from its three-month high and China Coal
(1898 HK) was down -9.2% from its September highs. The
iShares China A50 tracker (2823 HK), a popular hedge to A
share exposure, saw increased demand and became easier to
borrow as supply also increased throughout the month.
Chinese banks saw short covering as did Chinese automakers
after better than expected earnings from Geely Automobile
Holdings Ltd. (175 HK) and Guangzhou Automobile Group
Co. Ltd. (2238 HK).
Korea
Borrow in Celltrion Inc. (068270 KS) remained tight and
rates spiked on new demand. There was also fresh demand
for certain electronics names including Samsung Electronics
Co. Ltd. (005930 KS) and SK Hynix Inc. (000660 KS) due to
the sudden increase in DRAM prices.
Japan
Deregulation of price-setting rules and large-lot margin
trading took effect in October. The main change was removal
of the uptick rule, subject to certain exceptions. As a result, it
is possible that short volumes may spike in November.
Earnings season dominated Japan in October, with results
that were generally weaker than expected. Interest was acute
in construction, airline, online gaming and China names such
as: Kumagai Gumi Co. Ltd. (1861 JP), IHI Corp. (7013 JP),
Ana Holdings Inc. (9202 JP), GungHo Online Entertainment
Inc. (3765 JP), Dena Co. Ltd. (2432 JP), Gree Inc. (3632 JP),
Komatsu Ltd. (6301 JP), and Hitachi Construction Machinery
Co. Ltd. (6305 JP).
Australia
As the market rallied in October, the Materials sector
experienced the heaviest short covering followed by the
Energy and Consumer Discretionary sectors. Consumer
Staples were the most shorted. There was heavy interest in
Leighton Holdings Limited (LEI AU) and in ResMed Inc.
(RMD AU). Shorts in ear plant manufacture Cochlear Ltd.
(COH AU) reached year-to-date highs after several brokers
downgraded the name. There was new activity in the REIT
space after Dexus Property Group (DXS AU) offered to
acquire Commonwealth Property Office Fund (CPA AU).
There was continued short interest in Monadelphous Group
Ltd. (MND AU) as a result of lower capex within the mining
services sector.
8
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.
9. Prime Brokerage Global Hedge Fund Trends – Institutional Investor Sentiment
Institutional Investor Sentiment
North America
In October, the Capital Introduction Group (CIG) traveled to
Boston where consultants, endowments and funds of hedge
funds (FoFs) dominate the hedge fund investor community.
Although the consultants are still allocating to the larger
hedge fund managers, they have begun to look at managers
further down the AUM spectrum. As with institutional
investors in other regions, Boston-based allocators are
interested in learning about new launches and emerging
managers albeit primarily for informational purposes. Most
investors in the region require at least a one year track record
before committing capital. Investors generally remain
interested in equity long short (with some sector interest in
healthcare and technology) and event driven strategies,
including activism.
Some investors in North America have recently inquired
about strategies that can serve as a hedge in a rising rate
environment. CIG has also seen searches for niche credit
strategies such as direct lending and aircraft leasing. Several
groups also have inquired about co-investment opportunities.
Table 6: Investor strategies of interest by region 9
North America
Direction of
Interest
Level of
Interest
EMEA
Direction of
Interest
Asia Pacific
Level of
Interest
Direction of
Interest
Convertible
Arbitrage
Neutral
Neutral
Neutral
Corporate
Credit
Neutral
Neutral
Neutral
Equity Long
Short
Neutral
Neutral
Increasing
Event
Driven
Neutral
Increasing
Increasing
Macro
Neutral
Neutral
Neutral
Decreasing
Neutral
Neutral
Neutral
Neutral
Increasing
Decreasing
Neutral
Level of
Interest
Decreasing
CTA
Market
Neutral
Structured
Credit
Legend
Low Interest
Medium Interest
High Interest
Source: J.P. Morgan Capital Introduction Group
EMEA
CIG is observing increased interest in alternative UCITS
from European investors. The investors have different
motivations for the searches, including improved portfolio
liquidity and underlying demand for regulated structures. The
allocators showing interest include asset managers, private
banks and FoFs. Interest is also coming from traditional longonly investors seeking absolute return.
While equity strategies have traditionally formed the bulk of
the UCITS universe, investors are now seeking UCITS funds
that concentrate on other strategies to diversify their
portfolios.
Asia Pacific
There has been a marked uptick in overseas investor interest
in Asia Pacific strategies based on research and due diligence
trips to the region. Inquiries have come from a wide array of
allocators, ranging from smaller FoFs and family offices to
multi-billion dollar institutions. Interest also has been
geographically broad, coming from across the U.S. and
Europe. It should be noted, though, that many of the abovementioned investor trips appear to be more fact-finding in
nature. Commensurate allocation flows have yet to occur.
9
This information comes from CIG conference calls and meetings with global hedge
fund managers and institutional investors. This table represents views of the CIG team
and may not be completely exhaustive.
9
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.
10. Prime Brokerage Global Hedge Fund Trends – Market Perspectives
October Commentary
There was a considerable degree of uncertainty leading up to
the October FOMC meeting. The federal government
shutdown created something of a wildcard since the outcome
of the October meeting was necessarily contingent on a
resolution of the budget imbroglio. However, the meeting
itself was largely uneventful.
Coming out of the meeting, the Federal Reserve opted not to
change the pace of its bond buying program or its interest
rate forward guidance. In its post-meeting statement, the
Federal Reserve indicated that the FOMC remains biased
towards reigning in the pace of the program at coming
meetings. Notably, the statement belied little concern about
the recent softening in growth indicators. In fact, in contrast
to prior releases, the statement made no mention about rising
mortgage rates or the “tightening of financial conditions” as
being impediments to economic growth. Perhaps the most
noteworthy aspect of the FOMC statement was its mention of
“available data,” which underscores that it was working with
limited information as a result of the backlog of economic
data releases because of the shutdown (which it is believed
may lead to distortions in reports on the economy over the
next few months).
We were therefore left with a placeholder report, which was
not surprising in light of the September meeting surprise.
Many analysts now expect Fed tapering to begin in March
2014. That timeline could become complicated, though, since
the March FOMC meeting coincides with the next “drop
dead” date for the debt ceiling. The Fed taper guessing game
will therefore continue for the time being.
The following sections are excerpts from J.P. Morgan
Research publications. The full publications can be
accessed via the sources provided in the footnotes below.
Japan: can Abenomics achieve fiscal targets?
10
Prime Minister Abe claims that Abenomics has been working
effectively to boost growth and public confidence, but he
seems rather reluctant to focus on fiscal consolidation beyond
his decision to raise the consumption tax (VAT) rate from the
current 5% to 8% in April next year. It appears that boosting
nominal growth is his priority, and that he believes fiscal
concerns can be largely overcome by high growth. Indeed,
10
J.P. Morgan Economic and Policy Research, Japan: can Abenomics achieve fiscal
targets? October 25, 2013 https://jpmm.com/research/content/GPS-1241116-0.
the decision to raise the VAT next year accompanied a
promise of a large, ¥5 trillion (1% of GDP) fiscal stimulus to
ease the drag. Also, although the next tax hike in October
2015 from 8% to 10% is already legislated, Abe mentioned
that the government will reassess Japan’s economic situation
before the final decision, as it did this summer.
However, the government has internationally committed to
fiscal targets that halve deficits in the primary balance (PB)
of central and local government by FY2015 (3.3% of GDP)
from FY2010 (6.6%) and aims to achieve a surplus in
FY2020. There is no doubt that this is a major challenge. We
think there is little danger that the prospect of missing the
targets triggers a collapse in JGB market, because the
ongoing, aggressive purchases by the BoJ—which seem
unlikely to end anytime soon—are a powerful policy tool to
lower JGB yields. Still, it is reasonable to expect that missing
the targets would damage confidence in Japanese fiscal
health, which raises the risk of future turbulence in the
government bond market. Without meaningful reforms in
social security and the tax system, in addition to reforms to
the economic structure that is the current focus of the third
arrow of Abenomics, we believe fiscal concerns will not
fade.
EM have driven recent pop in global IP growth 11
Global manufacturing has strengthened materially in recent
months, with output gains of more than 4% annualized in the
three months through August. This is the fastest pace in about
two and a half years, with the exception of the brief pops that
followed the Tohoku disaster and the Thai flooding. The
recent pace is consistent with global GDP growth that is a bit
above trend, so it poses some upside risk to our forecast,
though the gap is certainly well within the margin of error.
Likewise, the 4% pace of IP growth is aligned with the latest
readings for the global output PMI and the PMI
orders/inventory ratio, which track current and future growth
in manufacturing.
Although IP growth has picked up in most countries, the lift
is concentrated in the emerging market economies, whereas
the improvement in the developed world has been more
modest. This is somewhat surprising since most of the
improvement in GDP growth up until now has occurred in
the DM (notably Western Europe and Japan), whereas the
EM have been hobbled by various domestic factors.
11
J.P. Morgan Economic and Policy Research, EM have driven recent pop in global IP
growth, October 18, 2013, https://jpmm.com/research/content/GPS-1234199-0.
10
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.
11. Prime Brokerage Global Hedge Fund Trends – Market Perspectives
Our global forecast does incorporate some lift in EM GDP
growth (especially excluding China). However, we expect
less than the normal unit beta response to the acceleration in
DM growth. This expected underperformance owes to
domestic drags including the squeeze on corporate profit
margins and hiring, tighter EM bank credit standards, and a
further deterioration in EM financial conditions as the Fed
moves toward tapering.
The unexpected strength of EM IP growth raises several
questions. The first is whether we are underestimating 3Q
GDP outcomes in the EM. This week, we got an upside
surprise in Chinese GDP growth for 3Q even though the
forecast already had been raised in advance of the report. It
also is worth noting that the growth of EM IP was unusually
weak relative to EM GDP in 2Q, so the recent pickup in IP
growth could merely be reversing this gap.
The second question to consider is what is driving the EM IP
lift, and in particular, whether the impulse has been from
final demand or inventory growth (indeed, we are grappling
with this same question at the global level). A sustained
upside surprise in final demand growth would open the door
to faster EM GDP growth in 4Q and beyond.
11
This material is provided by J.P. Morgan’s Prime Brokerage business for informational purposes only. It is not a product of J.P. Morgan’s Research Departments.
For Institutional Investors only. For the intended recipient only. The reference period for this publication is October 2013 unless otherwise stated.