Brummer Multi-Strategy monthly commentary May 2023

Markets

Market sentiment shifted in May from pricing rate cuts in the latter half of 2023 to rates remaining higher for longer and the potential avoidance of a hard landing. The US economy showed signs of strength with resilient labour market data while first quarter GDP numbers and core inflation numbers came in stronger than expected. In fixed income markets the yield on short-dated government bonds moved higher with the US two-year rising from 3.7 to 4.6 per cent. Intense debt ceiling negotiations in the US weighed on risk appetite during the month. In spite of this, in equity markets, the Nasdaq index continued its outperformance driven by AI fever and Nvidia Corp in particular, Japanese equity markets also had a strong month reaching 33 year highs while equity markets in China struggled on the back of weak data. In commodity markets oil prices moved lower during the month as did gold. In foreign exchange markets the dollar rallied against a basket of currencies while the Japanese yen continued to depreciate.

Brummer Multi-Strategy

Long/short equity was the month’s largest contributing strategy. US TMT was particularly fruitful generating solid long and short alpha with media and entertainment names particularly strong drivers. Healthcare was also a profitable sector particularly within the biotech space, as was industrials with short alpha within capital goods contributing the most. 

Systematic trend following also generated gains. In developed markets, gains came from commodities, foreign exchange and equities. Within alternative markets, power markets were the most profitable for the month while commodities and fixed income also contributed. 

Systematic macro detracted marginally for the month with relative value positioning in equities and foreign exchange detracting the most. 

As of June 1st, BMS portfolio managers increased the allocation to long/short equity.