Markets

Far from a peaceful summer month, July proved to be marked by violent internal rotation and renewed threats in the middle-east. The fragile ceasefire between the US and Iran broke down repeatedly throughout the month as attacks and retaliatory strikes slowed down traffic through the Hormuz Strait to a halt.  

US Equity markets were rocked by a sharp rotation in the technology sector, as the semiconductor complex entered a bear market on fears that cheaper Chinese large language models might challenge those at the forefront. This ultimately caused the Nasdaq 100 to fall 6.6 per cent as investors, spurred on by rumours of a surprise Fed rate-hike, heavily decreased their exposure to the sector. The rotation out of crowded chip names hit Asia hardest: South Korea’s Kospi collapsed 22.2 per cent and Japan’s Nikkei fell 8.1 per cent, dragged down by SK Hynix and Samsung despite record earnings, though both markets remain firmly higher year-to-date (+45.2 and +23.0 per cent respectively). In stark contrast, European equities decoupled to the upside, with the DAX (+3.7 per cent), FTSE (+3.5 per cent) and Stoxx 600 (+1.2 per cent) all advancing on the back of resilient financials and limited exposure to the AI-at-risk theme.   

Sovereign bond markets saw a broad, global repricing higher in yield. Despite rumours of a surprise hike the US Federal Reserve held rates unchanged at 3.50–3.75 per cent, but new Chair Kevin Warsh struck a distinctly hawkish tone while offering little forward guidance, leaving markets to reassess the policy path. As a result, most longer-term sovereign bond yields climbed more than 25 basis points and by month-end, markets were pricing a probability of over 80 per cent for September rate hikes from both the Fed and the ECB, reflecting the inflationary threat from higher energy prices and elevated fiscal risk premia. 

In currency markets, the standout event was a historic intervention to support the Japanese yen. After the currency touched a four-decade low against the dollar, Japanese authorities are estimated to have bought some USD 53 billion of yen in a single day — the largest such operation on record — with the United States confirming its participation for the first time since 1998. The yen strengthened accordingly, with USD/JPY falling from 162.55 to 157.40. The broader dollar softened following the Fed’s hawkish-but-vague hold, with the Euro and British Pound strengthening somewhat.

Commodity markets were once again dominated by crude oil and the situation regarding the Hormuz Strait, with Brent and WTI crude oil surging to prices in excess of USD 90 and USD 80 per barrel. 

Brummer Multi-Strategy

July was a difficult month for the portfolio, as the unpredictably violent trend reversals and sector rotations caused the fund’s positioning to falter performance-wise. Nevertheless the damage was mitigated, partially through the diverse contribution of the portfolio’s constituent strategies and partially through the central hedging of the fund’s exposure to the AI theme.  

The fixed income & macro bucket proved the largest positive contributor to performance in July, of which discretionary fixed income relative value & macro contributed the most. There, performance could mainly be attributable to long inflation positioning in the Nordics, lightly offset by EU positioning. Systematic macro also contributed positively to the portfolio, where profits were realized in all asset classes traded but mainly in Chinese equities, short dollar positioning and commodities. Long/short credit detracted for the month, as profitable positioning in financials was offset by losses in software and indices. Systematic fixed income detracted on the back of elevated US treasury yields, while Australian sovereign bonds helped alleviate some. 

The convexity bucket detracted as a whole for the month, with dispersion between systematic trend-following strategies. For alternative market trend, contribution was positive thanks to positioning in energy commodities and fixed income, which were partially offset by losses in equity indices and credit. For developed market trend, losses were mainly attributable to equity indices with greater exposure to semiconductors, coupled with long dollar exposure. 

The long/short equity bucket was the largest detractor to performance this month, as the sharp sector rotations in tech negatively impacted the portfolio. For US TMT, minor gains in telecommunication and financial services were outweighed by losses in semiconductors, software and technology hardware. In global healthcare sectors, major gains were realized in pharmaceuticals, biotech & life sciences which were lightly offset by some positions in Swiss healthcare equipment. In listed real estate, losses in European real estate names were partially offset by gains in Japanese Real Estate Investment Trusts (REITs). Among European financials, losses could be attributed to unfortunate positioning in financial services and banking names.

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