Upload
others
View
0
Download
0
Embed Size (px)
Citation preview
For attendees at the MondoHedge event only and not to be distributed to the public
Global Macro & Managed FuturesStrategies: Flexibility & Profitability intimes of turmoil.Robert Puccio
Global Head of Macro, Quantitative, Fixed Income and Multi-StrategyResearch
For attendees at the MondoHedge event only and not to be distributed to the public | Page 2
Presentation Highlights & Objectives
How have the global macro & managed futures strategiesperformed during past market dislocations?
What factors enabled these strategies to achieve these returns?
How do the strategies behave in a diversified portfolio? Iscorrelation beneficial?
What changes have occurred since 2008 within the industry?
In what environments do these strategies perform best?
What is the outlook following the crisis?
For attendees at the MondoHedge event only and not to be distributed to the public | Page 3
Global Macro & Managed Futures FundsDefinition, Styles and How They Make Money
Global Macro & Managed Futures funds, by definition, have the broadest mandatewithin the hedge fund universe. They have no “long bias” and, as such, are agnosticwith respect to direction. Long and Short positions are expressed in interest rates,commodities, currencies, equities and volatility on both a Relative Value and aDirectional basis in countries around the world. There are many different styles withdifferent risk/return profiles falling under two broad categories of macro : Discretionary – The classic approach. Through the use of a top-down approach based on internal forecasts for
global macroeconomic trends, managers construct a portfolio of uncorrelated themes across different timehorizons. Strong risk management is key to the survival of a manager with this philosophy. The strategy haschanged from the early-days when a manager generally had a single-book or portfolio. Today, the largestdiscretionary managers employ a “prop-desk” approach in which many individual portfolio managers are eachallocated a portion of the total capital or risk.
Quantitative – Commodity Trading Advisors (CTA’s) or Managed Futures Funds. There are different types,including trend followers, mean reversion and pattern recognition. Trend Following strategies tend to invest overmedium to long-term horizons (holding period of weeks and months) while Pattern Recognition and MeanReversions strategies can be shorter-term in nature.
What is common among all of these trading styles is the liquidity of the instrumentsthat a Macro trader uses to express their views and the well defined riskmanagement policy followed to avoid steep losses.
For attendees at the MondoHedge event only and not to be distributed to the public | Page 4
Historic performance – How have the Macro & Managed Futuresstrategies performed?
Macro strategies have shown their resilience in negative years for equity indices.
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -Sept
HFR Macro CSFB Managed Futures MSCI World Local Price Index
Source: Pioneer Alternative Investments, HFR Macro, CSFB, Bloomberg. Data as of September 30 2010.
For attendees at the MondoHedge event only and not to be distributed to the public | Page 5
Down capture is limited for Macro. We witness negative down capture for Managed Futures:– The average return of the 10 worst months for the MSCI World is -10.4%– The average return of the HFR Macro is -0.16% and the CSFB Managed Futures is +3.71%
Up capture is also limited for Macro, but nevertheless positive. Managed futures again shows negativecapture:
– The MSCI World averages +7.46% in the 10 best months– The HFR Macro average is +1.12% and the CSFB Managed Futures average is -0.40%
How is performance in extreme monthly environments?
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Oct
-08
Aug-9
8
Sep-0
2
Sep-0
8
Feb-0
9
Sep-0
1
Aug-0
2
Jan-
08
Jun-
08
Feb-0
1
Apr-0
9
Apr-0
3
Dec-9
9
Sep-0
9
Oct
-02
Nov-9
9
Oct
-98
Apri-0
1
Sep-1
0
Mar
-10
MSCI World Local Price Index CSFB Managed Futures HFR Macro
Manager selection is vital as dispersion of returns tends to be high in this environment
Source: Pioneer Alternative Investments, HFR Macro, CSFB, Bloomberg. Data as of September 30 2010.
For attendees at the MondoHedge event only and not to be distributed to the public | Page 6
Global Macro & Managed Futures – Shock Absorber in Times ofDislocation
MSCI World Local Price Index
HFRX Equity Hedge Index
HFRX Convertible Arbitrage Index
HFRX Distressed Securities Index
CSFB Managed Futures
-40.77%
-22.24%
-50.26%
-28.90%
9.49%3.49%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
HFRX Macro Index
Other positive strategies included dedicated short-bias funds and long volatility strategies.
Macro and CTA strategies showed their diversification benefits during this stressed environment.
Source: Pioneer Alternative Investments, HFR, CSFB, Bloomberg. Data as of September 30 2010.
The 6 month period between September 2008 and February 2009 was one of the greatest stressenvironments that portfolios have had to endure.
For attendees at the MondoHedge event only and not to be distributed to the public | Page 7
Strategy Correlations Change in Times of Stress
The 2007-2009 period proved that long-term correlation assumptions for various alternativestrategies may not hold in severe market stress. Result: portfolio managers were unable todiversify away the systemic risk in their portfolios. Macro & CTA strategies maintained theirlong-term correlations when they were needed most – in many cases they even improved,becoming less correlated with traditional asset classes.
Correlation Matrix Period: Apr '03 to Jun '07
Benign, Lo-Vol environment
Period June 2007 - March '09
Stressed, Hi-Vol environment
MSCI World Local Price Index
HFRX Macro Index 0.60 0.01CSFB Managed Futures 0.58 (0.27)
Fund 1 (0.21) (0.28)
Fund 2 0.08 (0.26)
Fund 3 0.48 (0.28)
Fund 4 0.42 0.30
Fund 5 0.57 0.18
Fund 6 0.16 0.18
Fund 7 0.44 (0.22)
Fund 8 0.50 (0.54)
HFRX Equity Hedge Index 0.83 0.80
HFRX Distressed Securities Index 0.31 0.44
The table above shows the correlations of various hedge fund strategies, and some individual Macro & ManagedFutures funds to the MSCI World Local Price index.
Source: Pioneer Alternative Investments, HFR, CSFB, Bloomberg. Data as of September 30 2010.
For attendees at the MondoHedge event only and not to be distributed to the public | Page 8
Macro investing – Risk adjusted returns
Source: Pioneer Alternative Investments, EDHEC, Bloomberg, S&P. Data as of September 30 2010.
Sharpe Ratios (Nov 2000 - Sept 2010)
1.090.97 0.93
0.75 0.73 0.68 0.640.53 0.50
0.42 0.380.24
(0.06)
(0.35)(0.60)
(0.40)
(0.20)
-
0.20
0.40
0.60
0.80
1.00
1.20D
istr
esse
dS
ecu
ritie
s
ED
HE
CG
lob
alM
acro
ED
HE
CT
rad
ing
ED
HE
CE
ven
tD
rive
n
ED
HE
CM
ultis
trat
Em
erg
ing
Ma
rke
t
ED
HE
CR
ela
tive
Valu
e
Fix
ed
Incom
eA
rbitra
ge
ED
HE
CC
TA
Glo
ba
l
Eq
uity
Ma
rke
tN
eu
tra
l
Co
nve
rtib
leA
rbitra
ge
Lo
ng
/Sh
ort
Eq
uity
ED
HE
CS
ho
rtS
elli
ng
S&
P5
00
Price
Ind
ex
EDHEC strategy indices ranked by Sharpe ratios over the past 10 years.
For attendees at the MondoHedge event only and not to be distributed to the public | Page 9
Transparency & Liquidity – Good and getting better since 2008
Investor concern and disappointment post-2008 forced managers to make improvements inliquidity terms and transparency.
Macro strategies generally offer investors quarterly or monthly liquidity. Annual lock ups havebeen removed. CTA’s generally offer monthly liquidity in a fund structure, and weekly or dailyliquidity in a managed account
Risk reports have become more detailed and there has been a strong movement to third-party risk reporting, ex. MeasureRisk & RiskMetrics.
Macro strategies trade liquid underlying instruments – mostly futures are used for Equities,Interest Rates, Commodities and Currencies where leverage is embedded in the instruments.This type of leverage is less dependent on the changing behavior of prime brokeragecounterparties.
UCITS III is now available for many CTA’s, and the availability of UCITS offerings amongdiscretionary macro funds is growing, too. Limitations on leverage, exposure to commoditiesand concentration limits have been encountered and addressed in the development of UCITSfor macro managers. Investors, however, must still expect some tracking error and lowervolatility of returns.
Due diligence is a two-way street; managers are now concerned about a potential investor’slevel of sophistication and want to make sure they understand their strategy.
For attendees at the MondoHedge event only and not to be distributed to the public | Page 10
PAI approach to selecting managers
PAI Due Diligence focuses on:
Proven ability of a manager to make money in a variety of economic environments
Low to negative correlation of returns to equities and credit markets
Combining managers with different areas of expertise and low correlation to each otherto gain diversification benefits
Preference for “prop-desk” style of fund with multiple risk-takers and strong riskmanagement processes.
Avoiding dedicated leveraged fixed-income relative value strategies
Predictability of returns
A well chosen Fund of Macro & Managed Futures Hedge Funds is thepurest form of an absolute return strategy.Why? No directional bias, flexible mandate across all asset classes, andstringent risk management.
For attendees at the MondoHedge event only and not to be distributed to the public | Page 11
Strategies Focus: Macro and TradingYield Curve Illustrative Trade Example
An investor has a strong belief at the start of 2009 that the monetary stimulus, which has been orchestrated by the centralbanks, will remain in place for far longer than is typical in an economic recovery cycle. Policy makers can not risk thebacklash in case they de-rail an economic recovery.
The long-term implications of this stimulus by policy makers has potential inflation implications which would affect long-term rates.
At the same time the government will have to issue massive amounts of new debt in order to pay for the fiscal stimulusprograms. This supply of debt could also push yields on longer dated bonds higher.
The investor implements a yield curve steepening trade where they are long the 2-year and short the 10-yearTreasury rates. (hoping the spread will widen from 133bps where it closed in 2008).
While there is risk of volatility in the legs of the trade, the liquidity in the trade should allow for quick exit from thetrade should the thesis change.
Result: The 2yr yield moves just 8bps higher while the 10yr rises by 1.37%. (spread widens to 262bps)
Source: Pioneer Alternative Investments, Bloomberg.
For attendees at the MondoHedge event only and not to be distributed to the public | Page 12
Economic environments – Best & Worst
Best conditions:
Steep yield curves
Active Central Banks
Strong trends
Global economies indivergent cycles
Reasonably high volatility(not massive spikes)
Worst conditions:
Low volatility
Flat yield curves
High correlation amongassets
Choppy, trendless markets
For attendees at the MondoHedge event only and not to be distributed to the public | Page 13
Recent attribution
WORST
2008 2009 2010
BEST
Short equity indices
Long govt bonds
Long USD
Short Commodities
Curve steepness
Relative valueopportunities
Long risky assets
Emerging Marketslong Asian FX vs G3
Short Europe throughCDS
Curve Trades
CTA’s helped bybonds + S.T. rates
Less liquidinstruments
Credit exposure
Quantitative trendfollowing in equitiesand FX following Q1reversal of trends
CTA’s hurt by choppymarkets in equity +energy commodities
For attendees at the MondoHedge event only and not to be distributed to the public | Page 14
Outlook & Current Opportunities For Global Macro managers
Most Macro managers remain bearish in the medium to long-term but are againshowing flexibility by not “fighting the Fed” in the short-term.
The Fed’s aggressive QE2 program has reduced worries of a double-dip recessionbut longer-term issues concerning the markets include: European sovereign deficits,high unemployment in the U.S., weak housing market, tight credit and excesscapacity.
How are funds positioned? Long positioning in bonds has been a “crowded,” but profitable, trade for CTA’s and
discretionary macro managers. Volatility is likely to return to fixed income markets followingthe Feds experiment with “QE2” and its uncertain impact on inflation.
Commodities – Dollar debasement and the China growth story have been supportive ofstrength in energy, agricultural and base metals markets.
Gold – Multiple reasons to own it include: safe haven, inflation hedge, and as an alternative“currency”.
FX - The bet that China will allow the renminbi to strengthen is an area of considerableinterest to macro traders. A common bet is long EM baskets and short G3 currencies.
Equities – Opportunistic trading of country stock indices has been the preferred way to playthe changing appetite for risk.
Source: Pioneer Alternative Investments, HFR Macro, CSFB, Bloomberg. Data as of September 30 2010.
For attendees at the MondoHedge event only and not to be distributed to the public | Page 15
Global Macro Strategy - Conclusion
Historically low correlation to traditional markets with potential to generatestrong absolute returns
Historically performed well in bear equity markets
Potential to improve risk / return characteristics of traditional portfolios
Manager selection is key
Today’s environment is rich in opportunity
For attendees at the MondoHedge event only and not to be distributed to the public | Page 16
FOR ATTENDEES AT THE MONDOHEDGE EVENT ONLY AND NOT TO BE DISTRIBUTED TO THE PUBLIC
Past performance does not guarantee and is not indicative of future results. Unless otherwise stated, all views expressed are those of Pioneer Alternative Investments.These views are subject to change at any time based on market and other conditions and there can be no assurances that countries, markets or sectors will performas expected. Investments involve certain risks, including political and currency risks.This material is not a prospectus and does not constitute an offer to buy or a solicitation to sell any units of the Funds or any services, by or to anyone in anyjurisdiction. For additional information on the Funds, a free prospectus should be requested from Pioneer Alternative Investment Management SGRpa, Galleria SanCarlo 6, Milan – Italy.
The content of this document is approved by Pioneer Alternative Investment Management SGRpA
Pioneer Alternative Investment Management Limited is the manager of the funds underlying the Italian domiciled funds of hedge funds managed by Pioneer AlternativeInvestment Management SGRpA.
Pioneer Alternative Investments is a trading name of the Pioneer Global Asset Management S.p.A. group of companies.Source: Unless otherwise stated all information contained in this document is from Pioneer Alternative Investments and is as at 30 September 2010.
Pioneer Alternative Investments