The month of May ended with global stock markets generally higher than where they had started, and the VIX Index (CBOE) of US equity volatility was lower than where it had begun. Intra-month this Index had in fact closed at 9.77, its lowest level since 1993, and yet this view of ongoing, benign low volatility in markets masks two more significant events, from which both markets and the Fund recovered well. Rallying bond markets added to returns made in stocks and credit, more than offsetting smaller commodity losses, to leave the Fund up +2.72% on the month.
The first of these events occurred on Wednesday, May 17th, when risk assets retreated sharply as commentators raised the prospect of a US Presidential impeachment, following further twists in the stories of Russian involvement in the US election campaign. The S&P suffered its biggest one-day drop in eight months. In an apparently unrelated story, the next day another potential presidential impeachment was flagged, this time in Brazil, caused a 9% fall in the country’s Bovespa and the biggest sell-off in the real against the US dollar since 1999. Overall, however, equities were the strongest performing asset class, with Asian indices such as Kospi and Hang Seng standing out as winners for the Fund. The Trump news hit the Fund’s long positions in the broadest US index most, the Russell 2000 Index (^RUT), but its effect was far from uniform. Indeed, the technology-heavy Nasdaq Index ended the month up 3.7% and resulted in a positive contribution to the Fund. Credit markets shared in the positive sentiment of equities, with CDS positions in European indices in particular performing strongly. Yields in most markets declined over the course of the month, leading to profits from the Fund’s growing long bond positions. Italian bonds, in particular, continued their post French-election run of price increases to top the list of performers. On the debit side, receiver positions in Brazilian swaps were hit as short end yields widened on the news of corruption evidence implicating current President Michel Temer. A long position in the Brazilian real was by far the worst performer both in the FX sector and portfolio as a whole. Positions here and in the swap markets were quickly cut on the sharp increase in market volatility. Long positions in the euro, on the other hand, continued to benefit from the positive momentum following the French elections last month. Once again, commodities posted the largest losses in the portfolio, dominated this month by short positions in precious metals, where both silver and gold remain range-bound year-to-date. A more certain direction was seen in the agricultural markets, as soybeans, sugar and coffee prices all continued to fall to the benefit of short positioning in the Fund.
1. Next Edge AHL Fund (the “Fund”) returns are net of all fees and expenses associated with Class A Units charged from December 28, 2009 (trading start date.) Returns for 2017 are unaudited. Therefore, performance statistics containing 2017 figures shown in this material are subject to final confirmation. The historical annualized rates of return for the Next Edge AHL Fund Class A Units as of May 31st, 2017, are 1-yr -7.40%, 3-yr 2.53%, 5 yr -0.09%, 10-yr N/A, and CARR -0.48%. The Fund obtains exposure to the returns of a diversified portfolio of financial instruments across a range of global markets including, without limitation, stocks, bonds, currencies, short-term interest rates, energy, metals and agricultural commodities (the “Underlying Assets”) managed by AHL Partners LLP (the “Investment Manager”) using a predominantly trend-following trading program (the “AHL Diversified Programme”). The AHL Diversified Programme is implemented and managed by the Investment Manager.
The AHL Diversified Programme is also accessed by Man AHL Diversified plc. Man AHL Diversified plc is an open-ended investment company organized under the laws of Ireland and listed on the Irish Stock Exchange. While it is intended that the Underlying Assets will be managed with the same investment objectives and strategies used by the Investment Manager in managing the assets of Man AHL Diversified plc, their investments may not be identical and the returns of the Underlying Assets will differ from the returns of Man AHL Diversified plc. Differences in performance will be due to a number of factors including but not limited to fees, taxes, currency hedging, foreign exchange, variations in trading programmes and allocations, cash flows and asset size. The leverage, strategy and investments of Man AHL Diversified plc have varied over time and as a result performance in any future period will vary. The information about the performance of Man AHL Diversified plc is not, and should not be construed to be, an indication about the future performance of the Underlying Assets or the Fund. The charts depicting Performance Attribution, Sector Exposure, Key Market Attribution, Var and Net Exposure Monthly Comparison are derived from Man AHL Diversified plc.