What were the major events of the last quarter?
The first quarter of 2021 was an overall positive one for equities while global bonds lost some ground through the period. Broadly we have seen two themes develop across the investment landscape; one with respect to the reopening and the impact this might have on growth and the other the developments in the interest rate path, inflation and global stimulus. This latter item has also caused some patches of volatility in equities as they repriced on higher rates expectations, especially during the first part of the quarter. Overall, however, volatility was subdued through the period. Covid-19 continues to be in the headlines, although at this point it seems to be more focused on the vaccine rollout and development of new strains in select emerging economies.
What impact did they have on your asset class and strategy?
The broad appetite for risk has provided for benevolent tailwinds for investors. Performance across the ARP space was strong through the quarter, as showcased by industry benchmarks up in the 3-4% range for the period. This is not necessarily being fuelled only by traditional beta and directional positioning. Among the more nuanced themes during the period were equity factor rotations, particularly the resurgence in the value factor, as well as merger arbitrage. The increase in rates can be captured by short duration positions in trend models, and these models can also benefit from the increase in commodity and equity prices.
What’s your outlook for the next quarter and how are you positioned?
From a broader perspective the next quarter could be a more interesting one for traditional beta given the current price and valuation levels. One might question how much room equity markets still have to go; as such this might hint at opportunistic risk taking, a focus on select themes or regions working well in a potentially range-bound equity market. From our perspective and thus not leaning only on traditional beta for return generation but rather on a diverse set of risk premia which do not rely primarily on growth and rate levels, the opportunity set remains robust.
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The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not an indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers.