The recent market activity has seen a divergence between gold and crude oil. Gold has experienced a notable rally, climbing 5.2%, while crude oil has faced a significant downturn, declining by 6.2%. This divergence reflects the contrasting investor sentiments in the commodities market, with gold often seen as a safe haven during times of uncertainty.
In the currency markets, the Euro strengthened against the US dollar, rising 0.74% from 1.1060 to 1.1142, while the US dollar weakened by 1.62% against the Japanese Yen, dropping from 145.39 to 143.03. These movements reflect broader economic trends and investor reactions to monetary policy shifts.
US Equity Hedged strategies showed resilience in September, with generalist managers outperforming their sector-focused counterparts. The primary driver of these returns was individual stock selection, which proved crucial in navigating a month marked by renewed growth concerns. Following a challenging start, markets rallied significantly, spurred by the Federal Reserve's decision to cut rates by 50 basis points. This shift in monetary policy fostered a risk-on sentiment, leading to a notable increase in realized volatility, while quality factors posed challenges.
In Europe, Equity Hedged strategies delivered mixed results in September, with alpha generation generally positive but varying by sector. Performance was primarily driven by gains in utilities, momentum, and exposure to Germany, although these were offset by beta losses. Generalist funds outperformed energy-focused funds, while sectors such as miners, renewables, and real estate saw strong performance. Conversely, energy, oil, autos, and healthcare sectors lagged behind.
Asian Equity Hedged strategies also posted positive returns in September, largely driven by a rally in China following government stimulus announcements aimed at bolstering the economy. The Chinese market surged over 20% as investors reacted favorably to proposed monetary and fiscal policies designed to support both the property and equity markets. However, the Japanese market remained volatile, grappling with uncertainties stemming from potential US economic slowdowns and political changes following the recent election.
In the realm of fixed income, relative value strategies generally produced positive returns in September, with significant gains observed in US bond relative value and cash/futures basis strategies. European micro-relative value strategies remained subdued, although short swap spread positions in Europe contributed positively. Macro and short-term interest rate trading strategies with a received bias also generated gains, while positions in Japan detracted from overall performance.
Merger arbitrage and event-driven strategies yielded mixed results in September, with the average merger arbitrage spread tightening by approximately 30 basis points. However, the market capital-weighted spreads widened modestly due to underperformance in larger transactions. The overall equity capital markets environment was characterized by strong performance in block and follow-on trades, particularly in the US, while IPO activity remained muted, likely influenced by the upcoming US presidential election.
Discretionary trading strategies generally produced positive returns in September, with developed market macro funds benefiting from receiver trades and curve steepening exposures. However, performance in equities was more varied, with short positions in the US and long positions in Japan facing challenges. In the foreign exchange market, long-biased exposure in USD and short positions in CNH underperformed, while long exposure in JPY helped mitigate some losses.
In commodities, the performance was mixed; long positions in metals contributed positively, while those in oil underperformed. Macro relative value managers also reported positive performance on relative value trades in the US and, in some cases, UK rates.