TT International, a European hedge fund, had difficulty in July, as a reversal of market environment in Europe pushed the long / short equity strategy into a loss of -1.03 percent on the month, bringing the year to date performance to a negative -3.75 percent, an investor letter reviewed by ValueWalk reveals.
TT International notes the impact of global events on the market
The letter notes an odd sense of calm as normally market moving global events had little if any impact on markets. Events in Ukraine, while headline grabbing, “were comfortably amortised away,” the report noted. In similar fashion, events unfolding in Gaza, Syria and Iraq, while they may be humanitarian disasters, have had little resonance on oil or financial markets as one might expect.
The report noted an unusual quiet in Greece as financial reforms in the country came to an end without comment as the loss of nearly 25 percent of GDP in the region that has left the debt to GDP ratio now at 175 percent.
“But the picture of ballooning deficits as a result of austerity, countenanced by government debt costs at unprecedented low levels is not confined to Greece,” the investor letter wirily noted. Debt to GDP levels in developing nations is increasingly becoming a behind the scenes topic of conversation.
The TT International letter pointed out that markets are in fact at elevated levels given all that is going on in the world. “Even without the Ukraine, German Industrial production has declined for three months in a row; the economic situation in France is parlous and continues to deteriorate, and the latest GDP data for Italy showed that economy actually shrank,” the letter noted. TT called for “indigenous stimulus” to grow the economy, which included a weaker euro currency.
TT international focused on the low rates in EU
Through it all TT International is focused on the dramatically low rates across the Eurozone and to his he credits Mario Draghi.
Unlike many relative value funds, TT International’s long short ratios are closer together than most equity pairs trading strategies. The fund was 57.78 percent long and 51.71 percent short, with very few positions exceeding the 2 percent exposure level and no individual positions exceeding 3 percent of total portfolio exposure.
The funds top long holdings were Porsche Auto ADR (OTCMKTS:POAHY) (ETR:PAH3), BHP Billiton Limited (ADR) (NYSE:BHP), E.ON SE (ETR:EOAN) (OTCMKTS:EONGY), Bayer AG (ETR:BAYN) (OTCMKTS:BAYRY), Total SA (ADR) (NYSE:TOT) and Unicredito Italiano (OTCMKTS:UNCIF). Its major short exposures included Italian Utility, UK Industrial, German Material and German Industrial exposure.
Going forward, the fund notes that with market liquidity at “levels pretty much unknown,” it is a challenging environment to determine overall stock market direction. The report said that although there is less foreign exchange currency headwinds in the way of economic growth, the market is now likely to refocus on corporate earnings and more fundamental factors to derive near term performance.