Hedge funds sustained a bad run in the March-April period as markets abruptly reversed course. Bramshott Capital, a London-based equity long / short fund, saw a 5.2% decline in April in its Bramshott Europe Fund. The fund’s year-to-date return is now down to -4.7%, according to a monthly investor letter reviewed by ValueWalk.
Bramshott’s letter said that the last few months brought positive macroeconomic data but that inflation remained low, which drove down the yield of 10-year bonds. Like other hedge funds, Bramshott also noted the rise in corporate M&A activity, especially in the European region, which alluded to a higher level of confidence in the ongoing economic recovery.
Bramshott loses in short and long book
Bramshott has $421 million in AuM and is managed by Paul Findley. The fund ended April with a net exposure of 38% and gross exposure of 106%. Bramshott was most hurt in its holdings in industrials and consumer cyclicals, which were exposed to rotation in the markets. The fund therefore reduced exposure in these sectors as the markets continued to give preference to value over growth stocks. Some of Bramshott’s consistent long winners also reversed course in April, making the month particularly hard for the firm.
Bramshott Capital managed some gains from Orange SA (EPA:ORA), Royal Dutch Shell plc (ADR) (NYSE:RDS.A) and The Weir Group PLC (LON:WEIR) in April. Return from these positions were negated by losses in Osram Licht AG (FRA:OSR), CSR plc (LON:CSR), Publicis Groupe SA (EPA:PUB), Essentra PLC (LON:ESNT) and Berkeley Group Holdings PLC (LON:BKG).
While merger activity is usually responsible for bringing gains to hedge funds, it is ironic that Bramshott had to suffer because of it. On the short side, Bramshott declined with the announcement of three merger deals in its four large short positions in industrials.
Favorite holdings have long-term growth potential
In its market commentary, the fund said that fundamentals have been improving in the U.S and Europe, however, data from China and emerging markets is still not able to reflect the true direction of these markets. Even though Bramshott was hurt by the rotation from growth to value stocks, the fund is not necessarily revamping its portfolio yet. The managers are particularly optimistic about Europe and believe that M&A activity will rise even further going forward.
The fund plans to raise its net exposure as soon as its portfolio’s correlation with the market reduces.