Two European-focused funds, Cygnus Utilities, Infrastructure and Renewables fund and the Pensato Europa Absolute Return fund, found difficulty in October’s volatility.
Pensato Europa Absolute Return fund’s performance
Managers decrying the lack of volatility may have got more than they bargained for in October, noted the Pensato manager’s report. The fund was down -0.33 percent in October and is down -3.83 on the year. The fund was particularly hit on one of its short positions in the platform engineering space which saw a relief rally after the company confirmed higher guidance for the year.
The company noted that with the price of oil down significantly, it has been the smaller oil services stocks that have been hit hardest, not the majors. The Euro Stoxx Oil Equipment index fell by more than 16 percent in October compared with the broader Euro Stoxx Oil index being down only 8.6 percent.
Although the fund didn’t have significant exposure where it did well over the month was in the retail sector, with positive contributions from both its long and short positions, as well as financials, where the fund won in its four long positions and one short.
Cygnus Utilities, Infrastructure and Renewables fund performance
From Cygnus point of view, the fund, which was down -1.29 percent in October and is up 1.66 percent on the year, thinks the primary risk factor could be the unwinding of the U.S. dollar carry trade. “A rapid strengthening dollar might not only have a negative impact on the economies with high dollar denominated debt, but could also trigger significant USD carry trade unwinding,” the letter to investors noted, while saying the price of oil needs to get near $70 per barrel before OPEC considers cutting supplies.
On the month the fund saw positive returns contributions from Regulated utilities, which generated +15 basis points to the gross performance, and from Bonds, which generated +3 basis points of gross performance. The negative performers in the portfolio included Oils, which detracted -73 basis points from gross returns, renewables, which detracted -38 basis points from gross returns, integrated, -32 basis points detraction from gross, and infrastructures, which subtracted -8 basis points. The fund’s hedges were close to neutral during the month, -3 basis gross, “but were instrumental in risk management.”
Going forward the European-focused fund continues to keep an eye on the evolution of the U.S. market, oil prices, the U.S. dollar and the European banking sector.
