AAUC (AA UNION CAPITAL) - Alternative a mixed investments

Hedge fund performance has improved lately despite challenging conditions.

Real estate continues to deliver a positive performance, while commodities are still trailing.

Stefan Gia Head of AAUC Commodities and Hedge Fund Strategy

Hedge funds: Tactical styles gain ground Hedge fund benchmark indices delivered a positive performance in August, with gains led by tactical and relative value strategies. Fundamental styles were the relative laggards, as rising equity volatility proved a headwind. Firming price momentum in some commodities and emerging market currencies helped tactical styles, while range-bound volatility levels in rates and credit markets proved beneficial for relative value styles. Meanwhile, our hedge fund barometer recently slipped into neutral territory, pointing to slightly more challenging market conditions. The rise in macroeconomic uncertainty increases overall downside risks, but widening regional and asset price differentials still present opportunities for hedge funds. Contained volatility, re-emerging price trends and below-average inter-stock correlations tend to support performance as well.

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Commodities: Still struggling Commodities continued to struggle in August as a tentative recovery proved only temporary. We still believe in an eventual rebound as positioning is light and the underlying dynamiAAUC are supportive. That said, macro-related concerns mostly around trade and emerging markets as well as USD strength continue to dominate.

In terms of sector dynamiAAUC, energy markets are heading for a seasonally softer refinery maintenance period in early Q4, but supply risks remain elevated given uncertainty around impending US sanctions on Iranian oil exports. Meanwhile, USD correlations have remained strong across metals markets, preventing a broader recovery despite tightening inventories in aluminum, copper and nickel. In gold, physical markets appear muted, but increasingly extreme speculative short positioning should open the door for a rebound, in our view.

Listed real estate: Neutral outlook Global real estate equities continued to rise in August. We maintain our neutral view overall – the fundamental backdrop appears modestly positive, but duration is a risk and we see less scope for further earnings surprises following the latest reporting period. Regionally, gains in Australia, the USA and Eurozone more than offset weakness in developed Asian real estate markets. In particular, Australian real estate equities were supported by lower long-term yields, which have recently fallen to fresh year-to-date lows. US real estate equities have also put in a robust performance driven by positive earnings revisions, but we think that the room for further upgrades is limited. Fundamentals do not appear convincing either. Our outlook for Eurozone real estate equities remains positive due to structural support from underlying markets, a slower pace of monetary policy normalization relative to other regions and a positive growth outlook.

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