In March, markets saw a well-anticipated interest rate rise in the US, as well as a less well-expected failure by the new president to deliver on his first piece of promised legislature, the new healthcare bill. The dollar generally weakened globally, falling against both developed and emerging markets. However, global risk appetite remained mostly intact for the period, with equity and credit markets continuing their upward trajectories and realized volatility staying low. Reversals in interest rates and commodities proved challenging for the Fund, however, with losses also from trading in developed market FX. These were partly offset by positive performance in emerging market currencies and global equities to leave the Fund down on the month.
Despite reaching new all-time highs at the beginning of March, the US equity market underperformed markets in Europe and Asia, except for Japan. The Fund’s broadly long positions saw most gains coming from Korean Kospi, EuroStoxx, and Italian indices. Long positions in US banking stocks were costly as the Federal Reserve’s interest rate rise was accompanied by a more dovish tone from Janet Yellen that suggested a low rate environment would be around for some time to come.
Within commodities, it was a combination of energy and cocoa trading that dragged on performance. US natural gas, in particular, saw loses on short positions built up over the previous month as prices staged an 11% recovery. Cocoa, which had seen six straight months of falling prices, bounced 9% and eroded some of the gains made earlier in the year. Short sugar positions fared much better as the market continued to fall from highs made last October, and long exposures to metals such as aluminum and palladium continued to benefit from the global risk appetite.
In the UK at least, March will probably be remembered as the month that the government formally triggered the beginning of Brexit negotiations, via article 50 of the Lisbon Treaty. Despite some weakness early on, the British pound ended the month marginally up against the euro, and both were up against the US dollar. This weighed against the Fund’s positioning in developed market FX, which was broadly long US dollars against the likes of pounds, euros and Canadian dollars. Elsewhere, the dollar weakness saw significant gains for the Fund in more emerging markets, with long positions in Mexico, India and Russia benefiting.
The Federal Reserve’s raising of policy interest rates by 25bps was no surprise to markets and if anything it underwhelmed traders in Janet Yellen’s accompanying tone. US interest rates rose before the announcement and then retraced, sending treasury futures prices first down and then back up. The Fund started the month short US bonds and long German bunds and saw losses initially from Europe then also from America and the market rebounded. Smaller gains were made on gilt and Italian BTP positions as well as interest rate swaps in Brazil and Poland.
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 March 31st, 2017, are 1-year -13.91%, 3-year 4.56%, 5-year-0.92%, 10-year N/A, and CARR -0.45% 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.