Brummer Multi-Strategy monthly commentary October 2021
Brummer Multi-Strategy (BMS) SEK and Brummer Multi-Strategy 2xL (BMS 2xL) SEK posted an estimated return of 0.2 and 0.3 per cent respectively in October (0.2 and 0.3 per cent for the corresponding USD classes).
MARKETS
Global equity markets recouped most of the previous month’s losses with generally strong corporate earnings outweighing concerns over more hawkish signals from central banks. Energy prices continued to rise, with oil prices reaching a new multi-year record. This coupled with supply bottlenecks have fueled uncertainty over inflation expectations leading several central banks to turn hawkish in their communication. Some fixed income markets were turbulent, front end rates in particular surged higher as market participants have been challenging central banks’ “transitory” inflation narrative leading to an aggressive sell-off in shorter-term government debt while longer-term government bonds remained fairly stable.
STRATEGIES WITHIN BRUMMER MULTI-STRATEGY
During October, trend following strategies Florin Court and Lynx were significant positive contributors, both capitalizing on the move lower in bond prices. The former also made money on commodities while the latter lost money on long dollar positioning. The long/short equity strategies Manticore and Kersley contributed with positive alpha around the earning season. Macro focused Arete made money on equity positioning. The systematic equities strategy AlphaCrest, long/short equity strategy Pantechnicon and machine-learning strategy Lynx Constellation were marginally negative contributors. The month’s largest detractor was the fixed income relative value strategy Frost which had its worst month since inception, mainly suffering from the recent weeks’ surge in Swedish short term interest rates and flattening of the yield curve. A catalyst for the extreme moves, which spilled over to EUR and SEK rates, was Bank of England´s hawkish comments on the back of rising inflation expectations. In Sweden, there is now a significant divergence between the Riksbank’s communicated trajectory for short term interest rates and what the market is pricing in. Frost has reduced risk significantly to adjust the portfolio to the current market conditions. Frost’s negative contribution to BMS’s return is however limited since the allocation to Frost has been kept low. The fact that BMS finished the month in positive territory is a testament to the strength of the diversification in BMS’s portfolio.
As of November 1st, BMS’s portfolio managers primarily increased the allocation to Kersley and Florin Court. The portfolio managers also redeemed from its 1.2 per cent allocation to Lynx Constellation and instead increased the allocation to Lynx main program. In total, the allocation to Lynx was increased on the margin.
For more information on Brummer Multi-Strategy's performance, please see the tables and graphs below.
