Goldman Sachs HedgeWatch Jan 2013

1. January 2013
January 2013 Review
Investor optimism extends into the new year
Introduction Event driven managers post strongest gains in years
Underwhelming economic data and a moderate earnings Event driven managers generated positive performance
picture did little to offset bullish investor sentiment driven on the month, as the HFRX Event Driven Index gained
1
by key policy announcements in January. US-based risk 3.4% . This monthly number represents the largest
assets recorded early gains as a partial resolution to the positive return for the index since April 2003. Gains were
Fiscal Cliff was signaled by the American Taxpayer Relief led by equity special situations, with attribution from
Act being signed into law. Investors were then offered a company-specific developments supported by more
brief respite from worries over the ensuing debt ceiling, as general appreciation across regional indices. Merger
policy-makers reached an agreement on a temporary arbitrage performance was also positive, although the
extension bill. The notable absence of rate cuts by the sub-strategy continues to represent limited exposure for
ECB and surprisingly high levels of LTRO (Long Term many managers.
Refinancing Operation) repayments by European banks
While gains from performing credit have been somewhat
furthered gains, while trends in Japanese equities and
capped by already rich valuations, many managers
currencies continued amid a lighter stream of news. Gains
continued to benefit from idiosyncratic positions as well as
were capped in the final days of the month, as a
investments in large-scale liquidations. Structured
disappointing fourth quarter GDP print in the US gave
products, particularly mortgage-backed securities,
investors pause over the pace and sustainability of recent
extended gains from 2012, as market participants remain
global growth. Despite these longer term concerns, a
focused on improving conditions within the housing
general reduction in near-term macro uncertainty allowed
market. While there were few detractors within managers’
equity markets to climb higher throughout the month, with
long books, portfolio hedges generated modest losses
increasing participation from the investing community.
given the broad appreciation across risk assets and the
Hedge fund performance was positive in January, as the continuation of muted and downward trending volatility
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HFRX returned 2.0% with gains across most strategies. throughout most of the month.
Fundamental managers benefited from broad-based gains
in both equity and credit markets, while key earnings Long/short managers ride risk wave higher
announcements allowed equity managers to further Equity long/short funds finished the month in positive
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differentiate themselves though stock selection. Trading territory, as the HFRX Equity Hedge Index gained 2.6% .
oriented strategies also generated positive performance, Managers maintained moderate levels of risk throughout
with managers participating in the equity rally, while also most of the month, navigating a mixed fourth quarter
benefiting from a continuation of recent macro trends, earnings landscape to post gains in-line with their net
particularly in relation to Japan. Risk levels for hedge exposure levels. While several key earnings surprises
funds were generally above their recent averages, as dominated headlines, overall results for over- and under-
strong performance, low levels of volatility and moderate performance of consensus expectations were similar to
correlations have encouraged some funds to position historical averages. Long positions in financials and
themselves more aggressively. healthcare stocks lead gains, with exposure to US
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be
construed as research or investment advice. Please see additional disclosures. Past performance does not guarantee future results, which may vary.
1
Source: HFR Database © HFR, Inc. 2013, www.hedgefundresearch.com. Please note that HFRX performance indications are based on preliminary estimates.
Goldman Sachs Asset Management AIMS Hedge Fund Strategies

2. January 2013 |
financials being at their highest levels since 2010 by some positions in developed market crosses that had served as
measures. Managers with long exposure to the safe-haven currencies during periods when European
information technology sector generally underperformed debt concerns were more acute. Gains in equities were
this month, partially driven by disappointing earnings broad-based, with risk allocations to this asset class
announcements from certain large cap companies. slightly above historical averages.
On a regional basis, US indices climbed steadily higher,
Divergence in DMFX trends against the US dollar
while core European indices experienced more muted
gains. Managers with a focus on emerging markets EURUSD Curncy JPYUSD Curncy
110
GBPUSD Curncy CHFUSD Curncy
generally underperformed their developed market
counterparts due, in part, to concerns over economic
Value vs US Dollar (Normalized)
growth and increasing government intervention within 105
select developing nations. Japanese markets continued to
rally, as investors anticipated more accommodative policy
100
conditions to exhibit positive knock-on effects within local
equity markets.
95
Equity volatility and correlations remain muted
0.8 SP500 Realised Correlation VIX VOLATILITY INDEX Closing Price 90 90
31-Oct 30-Nov 31-Dec
0.7 80
70 88 10500
0.6 Source: Bloomberg,(LHS)of January 2013
USD/JPY as Nikkei Index (RHS)
60 10300
Correlation (%)
Implied Volatility
0.5 Attribution from fixed income was mixed, with a long bias
86
50 10100
0.4 at the back-end of US and European rate curves serving
40 9900
0.3
as 84 detractor for most managers, while others expressed
a
30 9700
Nikkei Index
views on the increasing likelihood of inflation through
USD/JPY
0.2
20 profitable steepener trades. Overall, commodity risk 9500
82
0.1 10 remains low amid muted volatility levels and limited 9300
80
0 0 trends. 9100
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
Dec-12
8900
Managed futures funds produced positive performance,
78
with longer-term strategies generally outperforming 8700
Source: Bloomberg, as of January 2013 shorter-term strategies. Performance was driven by31-Dec
76 gains
8500
30-Sep 31-Oct 30-Nov
from equity trading across regional indices, while long
Macro managers extend gains in key trends positions in U.S. fixed income detracted. Significant
Tactical trading strategies posted moderate gains in moves in energy-related markets led to further gains for
January, with the HFRX Macro/CTA Index returning managers, as crude exhibited a notable upward trend over
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0.1% . Returns for macro managers were largely driven the course of the month.
by a continuation of trends that were successful in the
fourth quarter of 2012, as managers profited from short Relative value sector benefits from muted volatility
positions in the yen and long positions in local equity Relative value managers generated positive performance
indices. Within the FX space, long positions in the euro in January, as the HFRX Relative Value Arbitrage Index
against a number of developed market crosses benefited 1
rose 1.5% . Returns were broadly positive across sub-
from early announcements that European banks had strategies, with the strongest performance coming from
expedited the pace of LTRO repayments, although multi-strategy, convertible arbitrage and credit relative
sentiment was tempered with a disappointing value funds. Quantitative equity market neutral strategies
announcement on secondary repayments, which came up also generated gains while fixed income relative value
short of analyst estimates. In response to the heightened managers underperformed, but still finished the month in
appetite for risk assets, managers began to increase short positive territory.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be
construed as research or investment advice. Please see additional disclosures. Past performance does not guarantee future results, which may vary.
1
Source: HFR Database © HFR, Inc. 2013, www.hedgefundresearch.com. Please note that HFRX performance indications are based on preliminary estimates.
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3. January 2013 |
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Source: HFR Database © HFR, Inc. 2013, www.hedgefundresearch.com
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