Investment Desk Bulletin

28 February 2018

Can Alternatives deliver when it counts?

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By Kristian Richmond

This week’s IDB covers the use of Alternatives within London and Capital’s portfolios and looks at performance and positioning following recent financial market volatility.

After a soft patch for hedge fund flows in 2016, flows into the industry bounced back in 2017. Institutions and private family offices have looked to bolster their alternative exposure, allocating most notably to event driven and macro strategies.

Following the recent equity market correction, there are signs of hedge fund managers adjusting positioning. Data suggests fundamental equity hedge funds have bought into the recent dip and are positioned more aggressively post the sell-off.

At the market peak in January, Commodity Trading Advisors (CTA), were entirely long headline equity indices as they followed the trend higher in markets. The sell-off in equity markets has shifted trend signals and as a result current CTA positioning is more balanced with a mixture of short and long equity positions, demonstrating how hedge fund exposures are dynamic in adapting to changing market conditions. Over the same period short bond positioning has extended.

The performance of our relative value manager, Cassiopeia, was strong during the recent sell-off as they benefited from a long VIX position as volatility spiked.

Uncorrelated hedge fund strategies can provide strong returns in unstable times and London & Capital’s UCITS portfolio has successfully delivered steady outperformance. As a portfolio which has been designed for low correlation with the market, it provides a shelter from volatility and can provide a complimentary return stream to traditional asset classes.

London & Capital has recently introduced a new alternative income idea. The SQN Portfolio delivers high income and diversification via a differentiated source of returns. The fund provides financing and leasing to a broad set of businesses.