Brummer Multi-Strategy monthly commentary March 2020
Brummer Multi-Strategy (BMS) SEK and Brummer Multi-Strategy 2xL (BMS 2xL) SEK posted an estimated decline of -2.1 and -4.4 per cent respectively in March (-2.1 and -4.3 per cent for the corresponding USD classes).
Markets
Markets witnessed extreme volatility in March as the United States and Europe became the epicentre of the coronavirus pandemic. The speed of the sell-off was severe, with equity markets in Europe and the US marking the biggest single-day loss since October 1987 as investors assessed the risk of mass unemployment resulting from the closure of borders and quarantining entire populations. In commodities the price of oil fell significantly, triggered by disagreements over production cuts between Russia and Saudi Arabia and a global drop in consumption. In fixed income the price of government bonds, which usually act as a safe harbour in stressed markets, initially fell in tandem with equities as investors sought liquidity. Risk sentiment stabilised somewhat in latter part of the month on the back of massive monetary and fiscal intervention with the US Federal Reserve embarking on a new program of unlimited QE purchases and the government injecting $2 trillion in fiscal stimulus.
BMS performance and outlook
We are of course not happy with the fact that BMS ended in negative territory for the month. However, from a portfolio construction perspective, the focus on diversification and market neutrality helped the portfolio hold up relatively well despite equity market movements not seen since the Global Financial Crisis. In addition to challenging markets the decision to redeem our investment in Bodenholm in full was enforced (more information on the Bodenholm closure is available at brummer.se) and their portfolio was liquidated during the month of March.
After withstanding the first weeks of market turbulence our focus gradually shifted to opportunities. Every market crisis is different but a common theme is that it usually creates good opportunities as prices get severely dislocated and fundamentals can change very quickly. We have seen and experienced this in the past during both the Dot-com bubble and the Global Financial Crisis. BMS is in a good position to exploit several opportunities both in the short and long term, while at the same time remaining diversified with a market neutral stance given our tolerance for risk. From a macro and market perspective we believe that the economic consequences are severe and that it will take a long time to recover. Consequently financial markets will most likely remain volatile.
As of April 1st, BMS increased its allocation to Manticore, Black-and-White and Arete while reduced weights in Observatory Capital, AlphaCrest and Lynx Constellation. The redemption in Bodenholm will be effected in April along with other investors’ redemptions.
