March net performance was positive at 0.51%. The portfolio performed well in an environment of
increasing uncertainty. The obvious driver of this uncertainty was the Trump administration taking
office followed by the swift enactment of many executive orders. Initially the most notable of
these were aggressive tariffs threatened against Canada and Mexico, which were subsequently paused.
In continuation from Trump’s first presidency, anger at the persistent lack of European NATO
financing was explicitly voiced by both Vance and Hegseth. This theme was backed up by a temporary
cessation of defense support to Ukraine. The EU reaction function has been quick with additional
financing of EUR 600bn and Germany abandoning its fiscal limits with a combined infrastructure and
defense program of over EUR 1tn.
Finally, overall uncertainty increased with the questioning of dollar dominance and geopolitical
status quo. The White House is keen to reverse the dollar’s strength but at the same time, keep its
status as the world’s reserve currency. A difficult path to take, alongside generating additional
income to fund extension of tax cuts. Added to this has been an active geopolitical agenda to bring
peace in the Russia Ukraine conflict and a desire to take control of sensitive strategic land such
as Greenland and the Panama Canal.
Over the quarter the portfolio added nine new strategies while three trades hit target, two stopped
out and five trades expired. This is in line with normal activity of 3 to 4 trade turnovers per
month.
Cross Currency Interest Rate trades were by far the most profitable Risk Type within the portfolio
for the quarter. Performance was led by short end rates for Australia continuing their recent
compression vs NZD, next was long end JPY rates rallying as their curve flattened on heightened
probability of the BoJ hiking rates and narrowing to EUR rates. Elsewhere, the long end UK curve
flattened vs its US counterpart, reversing some of Decembers negative move.
Curve trades continued to perform strongly benefitting from the re-steepening of real rates in EUR
and nominal interest rate curves that the fund has exposure to, notably in the US, and Australia.
In addition, idiosyncratic relative value curve relationships have been partially corrected over
the quarter in UKT and NZGB bonds. The negative draw was primarily due to long end GBP curve moves.
Spread trades were the next biggest positive contributors, with long end BTP’s outperforming
shorter maturities on ASW. EUR long end 3s6s basis and Canadian forward bond spreads also richened
well over the quarter, with French Inflation bonds continuing to cheapen, benefitting our RV
position. The only negative was a widening of long end Bund spreads on new fiscal concerns which
led to our trade being stopped out.
Volatility trades protected the portfolio and provided positive alpha in Japan and Canada as
implied and realized interest rate volatilities increased over the quarter.
FX positions, notably EURGBP longs, were a modest detractor.
Duration and Inflation trades were flat over the quarter.
