The trail of rough returns in April continues with TT International’s loss in its European long/short strategy. The European equity long/short fund was down 3% in April which pulled down the YTD return to -1.47%, according to a investor update seen by ValueWalk.

In the monthly investor letter the fund likened the unwind in European small and mid-cap companies to the fall of biotech and tech sector in U.S. TT International said that the European mid caps have been outperforming large caps since 2009 and a certain shakedown of this upward momentum was seen in April. The letter pointed out that real recovery in Europe has been somewhat weaker than expected excluding the exception of U.K where real income growth is positive and PMI figures show confidence.

TT International profit and loss in April

Some of the fund’s positions performed well in April. TT International’s long in Bayer AG (FRA:BAYN) (OTCMKTS:BAYRY), a German healthcare and high-tech materials company, EFG Bank, a Swiss investment bank and asset manager and Burberry Group plc (LON:BRBY) (OTCMKTS:BURBY), the clothing and apparel company were profitable in last month. In short positions the fund was up in a business services company and a aersospace equipment manufacturer.

Negative contribution from the long side came from London based power company Drax Group Plc (LON:DRX) (OTCMKTS:DRXGY), the residential developer Taylor Wimpey plc (LON:TW) (OTCMKTS:TWODF), electronics company Koninklijke Philips NV (ADR) (NYSE:PHG) and Greek lender Piraeus Bank SA (OTCMKTS:BPIRY). The bank has attracted investors including, John Paulson, Seth Klarman and David Einhorn.

TT International suffered in its short positions in French industrial sector and in a Spanish financial company.

The hunt for yield

In its commentary, TT International points out the changing reasons for declining yields, which is now more associated with reduced inflation,

“But of late the decline in yield has started to be associated more with the dearth of inflation – for which read the spectre of deflation – which haunts both US and European central bankers. This perception further exacerbated the recent rotation into large-cap defensive names in Consumer Staples, Pharmaceuticals and even Energy, and away from banks that have been at the core of the recovery in European equity markets, but where yield is hardly a characteristic at present.”

The letter also said that the crisis in Ukraine has little to no effect on the European equity markets. The fund said that there could be some short-term disappointment in the market due to lack of QE from ECB but it expects the central bank to act more decisively in future.