Areca Sicav SIF-Liquid Focus March 2017

Transcription

1 Areca Sicav SIFLiquid Focus March 2017 Share Class B USD NAV (ISIN: LU , Swiss Valor: , Bloomberg: ARLIQFB LX) JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC YTD % 0.39% 0.58% 1.19% % 0.67% 0.45% 1.27% 0.06% 0.56% 0.85% 0.85% 0.17% 0.49% 0.74% 1.07% 3.75% % 1.58% 0.48% 1.55% 0.73% 0.48% 1.30% 1.24% 0.25% 0.87% 0.82% 0.25% 3.03% % 0.07% 1.39% 0.82% 0.85% 1.09% 0.83% 1.00% 1.69% 0.08% % Strategy Breakdown Strategy Contribution (gross) Liquidity 8% 6% 7% 17% Relative Value Fixed Income Discretionary Relative Value Global Macro Systematic Relative Value 3% 4% 43% 9% Long/Short Credit Event Driven Distressed Securities 83% 0.2% 0.0% 0.2% 0.4% Daily Monthly Weekly Quarterly Fund Description The Areca Liquid Focus Fund is a diversified fund of hedge funds investing in various hedge fund strategies profiting from the rich opportunity set in liquid assets created from the financial crisis. The fund is invested in liquid hedge funds, managed account platform funds and UCITS III alternative funds. The portfolio consists of 10 to 15 liquid hedge funds. The objectives of the Areca Liquid Focus Fund are a return net of fees between 6% 8% p.a. over a three to five years investment horizon and a volatility of <5%. The fund aims at medium correlation to equity, fixed income and commodity indices. Investment Opportunity Current market dislocation creates rich investment opportunity trading liquid assets Flexible portfolio to adapt quickly to changing market environments thanks to the liquidity of the underlying funds Providing diversification benefits through uncorrelated returns to other risk asset classes Well diversified portfolio to reduce idiosyncratic risk of underlying managers High liquidity to satisfy investor's needs and suitable for cash complement Fund Details Launch date: 1 February, 2014 Subscription: Monthly, 5 business days notice Fund Type: Luxembourg SICAV SIF Next Date: 23 May, 2017 Investment Manager: Ayaltis AG, Zurich Redemption: Monthly, 35 calendar days notice Fund Administrator: Next Date: 26 May, 2017 Credit Suisse (Luxembourg) Initial Investment: EUR 125'000 Fund Depositary: or equivalent amount in USD, CHF, SEK Credit Suisse (Luxembourg) Subsequent Investment: EUR 1'000 Fund Auditors: Ernst & Young, or equivalent amount in USD, CHF, SEK Luxembourg Available Currencies: USD, EUR, CHF, SEK Fund Size: USD 28 million Management Fee A: 1.75% p.a. Performance Fee: 7.50% p.a. (HWM) Redemption Fee: No early redemption fee Taxes: EUTax Savings out of scope, EUAIFM Distribution Passport Contact Son Nguyen, Tel.: , nguyen@ayaltis.com

2 Since Inception / February 2014 Areca Sicav SIFLiquid Focus Monthly Report March 2017 Cumulative Return 20% 15% 5% 0% 5% Rolling 12 Month Correlation Areca Sicav SIFLiquid Focus JP Morgan GBI TR USD HFRI FoF Composite JP Morgan GBI TR USD HFRI FoF Composite Key Statistics (Since Inception) Currency Cumulative Return Average Return p.a. Standard Deviation p.a. Upside Deviation p.a. Downside Deviation p.a. Sharpe Ratio (Risk Free = 2.5%) Sortino Ratio (Risk Free = 2.5%) % Positive Months Average Positive Month Average Negative Month Best Month Worst Month Maximum Drawdown Correlation Upside Correlation Downside Correlation Areca Sicav SIF Liquid Focus JP Morgan GBI TR USD HFRI FoF Composite USD USD USD USD 5.12% 1.59% 15.97% 4.79% 1.29% 0.41% 6.58% 2.03% 3.44% 10.48% 4.55% 3.41% 2.73% 8.33% 2.98% 2.46% 2.14% 6.53% 3.44% 2.43% % 57.89% 60.53% 65.79% 0.93% 2.40% 0.85% 0.76% 0.75% 2.26% 1.20% 0.95% 2.30% 7.83% 2.84% 1.69% 1.69% 6.81% 3.79% 2.66% 6.03% 13.05% 6.59% 7.48% Other Available Share Classes Class ISIN Valor Inception Mar 17 NAV Mar 17 Return 0.50% 0.33% 0.58% 0.41% 0.37% YTD Return 0.95% 0.42% 1.19% 0.60% 0.52% Return S.I. A USD LU Feb USD 4.20% A EUR LU Apr EUR 8.32% B USD LU Feb USD 5.12% B EUR LU Apr EUR 6.34% B CHF LU Apr CHF 7.54% C USD LU Feb USD 0.52% 1.01% 2.78% C EUR LU Feb EUR 0.35% 0.47% 4.64%

3 Market Commentary Risk assets pricedup during most of the first quarter 2017 supported by optimism on fiscal stimulus and probusiness policies in the US and a potentially less disruptive political European outlook for the eventual outcome of the French election. Eurozone equities rallied and continued to catch up with its US peers as the European populist wave strength waned. The difficulties faced by Trump in his attempt to repeal ObamaCare temporarily dampened market optimism. Market sentiment remains constructive though and bullish spirits dominated, while at the same time the VIX Total Call Open Interest has reached unprecedented high levels: Unbridled equity market momentum speculation is decisively cautious as market participants hedge their yieldseeking, risktaking with high levels of protection. The largely expected rate hike was delivered with a lame dovish statement by the FeD on March 15th, reducing expectations of an acceleration of interest rate increases. Despite a brief panic followed by a quick stabilization, the first quarter of 2017 exhibited nearrecord low levels of volatility: The average absolute percentage change for each day this quarter was 0.32% for the DJIA. That is the lowest average absolute percentage change for a quarter since The Overnight Index Swaps are now pricing less than a total 40 bps hike by yearend. Everything is clear in the securities front, right? The peaceful quarter was particularly favourable to stocks and high yield bonds. Credit Spreads on single and double B s are now near post recessionary level, while CCC rated bonds are still more than 200bps wider. The same dichotomy between the top and bottom sides of the lowest rated bonds is observable in the leveraged loans space. Two thirds of the high yield sector have fully recovered the selloff that began in May 2015 and ended in February Attractive prices can still be found in the most problematic sectors such as energy and retail, but the risks of a reversal are rarely compensated by the current yields. With the end of the first quarter, the excitement for the new US administration is fading. With it, support for the momentum rally is thinning. Tension in Syria and North Korea as well as European elections (France first) all have the potential to trigger a correction in risk assets. Economic indicators are not shining either. The recent negative data on retail sales drove down the revision of the NY FED GDP forecast for Q1 and Q2. Meanwhile, the Fed indicated in its minutes released on April 5 that it may start winding down its portfolio of Mortgage and Treasury securities by year end. A highly anticipated move, but certainly an additional headwind for an economy that has yet to demonstrate the power to walk on its own legs. In Europe, Draghi confirmed that the European Union s economy is not ready to standup without the extreme monetary accommodation provided by the ECB in the last five years. Right after his speech, a few council members expressed their intention to move away from emergency mode. Swap rates and G7 currencies did not develop any sustainable trend and fundamental macro directional trades, in general, failed to find traction. The initial, peaceful, economically stimulative Trump period seems to be transitioning, uncertain on ultimate direction, shaken by missiles and erratic leadership. We strongly believe these seemingly peaceful markets demand a cautious investment stance ready to scalp bouts of volatility minimizing exposure to a potential larger surprise. Portfolio Commentary Systematic Relative Value was the strongest contributor to the overall performance in March and during the first quarter of However, the headwinds that negatively impacted fundamentally oriented, market neutral trading models during the reflation rally are still present. On the fundamental side, the equity market is in a consolidation phase, but geopolitical and macro considerations play a predominant role, destabilizing bottomup models. Although positive overall, this strategy shows a high degree of dispersion between managers: overextended periods of very low volatility and high levels of correlation inside sectors and industries temporarily reduce the magnitude of alpha opportunities. Distressed Securities were the second strongest contributor: Within Distressed Securities, our main allocation is in structured credit. We continue to benefit from our position in nonagency RMBS. Despite the increase in mortgage interest rates, the volume of both new and existing home sales keeps growing. Demand remains strong while supply, especially for certain segments of the market, struggles to satisfy the needs of a growing and aging society. The performance reflects the steady collateral appreciation within seasoned RMBS deals, the low delinquency and liquidation rates and the improved cashflows. Our managers have acquired a diversified set of 1800 positions with a weightedaverage price of approximately 50 cents/dollar, over the past eight years. This enviable portfolio of seasoned RMBS cannot be easily replicated. On the short side, our outlook remains negative on some portions of the CMBS market, specifically due to retail/shopping mall collateral exposure. Amazon grows at the expense of Sears, JC Penny, Macy s and many others. New consumption habits put into question the viability of many shopping malls and their underlying debt. The tightening of lending standards for commercial properties has just begun and the consequences may spread into other sectors. Three factors may contribute to a broadened credit crunch: 1) The high operational leverage amplifies the swings in the property value for small changes in the occupancy rate 2) Malls are the cornerstone for a broad network of activity 3) Malls are at the bottom of a pyramid of leveraged layers. Dying malls create shockwaves throughout the building, potentially shacking the whole structure.

4 We are paying attention to this eventdriven theme: it offers an ideal hedge and an attractive convex profile, particularly late in the business cycle. Despite the rally in HY and IG, this position has moved in our favor in recent months and it has offset some of the negative impact of the HY short. Global Macro was positive in March. Our allocation was proactively reduced and it is on track to be reduced further. One of our managers recovered the losses of February, due to the realignment of the decoupling between VIX futures and the underlying stock market. The reflation trade seems already vanishing, challenged by a series of deteriorated economic data (ISM and PMI both manufacturing and services). Our managers are still long real rates but the repositioned to be ready to capture a possible correction. Shorts in US high yield and US CMBS as well as short positions on currencies that may suffer tightening credit conditions in China are the main themes. Australia and New Zealand are the main targets for this trading opportunity. Not only these two countries are vulnerable to elevated commodity prices, iron ore in but their economies have also to face expensively valued housing markets. We expect to see a certain level of protection, or at least neutrality, going through French elections. Long/Short Credit was highly profitable. The uncertainties around French elections made relativevalue trades very profitable during the month: our traders are short OAT and generally long European stocks and credit vs the corresponding US indices. Autos and retailers offer two great opportunities to hedge bullish reflationary trades at a very cheap price. At the same time, the huge underweight of Europe in investors portfolios was vindicated in March. Contradictory signals opened opportunities in the high yield CDS universe. US CDS indices reversed their tone impacted by the concerns on the oversupply of cars, languishing mall visits and lower oil prices. European bases were particularly profitable. Within Relative Value Fixed Income, the month of March was flat. Draghi and Yellen highly expected moves did not generate the desired volatility in spread and curve trades. Interest rates started moving higher during the first two weeks of the month but they closed almost unchanged. The Fed s move to trim assets may increase shortterm rates making steepener trades more difficult to realize. The Event Driven strategy was highly profitable in the quarter but muted this month. Discretionary Relative Value managers ended the month in negative territory. The unexpected low volatility of the equity market in Japan was the main reason behind the losses of two of our allocations. The embedded options in Japanese convertible bonds, that we found cheap at the end of last year, got significantly cheaper in March. Our exposure to CBs suffered the large drop in implied volatility. At the same time, the Nikkei 225 implied volatility decoupled from its corresponding S&P 500 measure, affecting the mark to market of our relative value position. The whole impact for our fund was approximately 20bps. Portfolio Outlook March was not particularly good for the US stock market, the S&P 500 closed almost even, but the European markets closed the gap of the previous three months, lifted by better economic data, proeurope results of Dutch election and less worrying expectations on French election. All the while, our opportunity sets paidoff. Under a very different set of market conditions, our fund mirrored the results of the previous month highlighting the return potential diversity of our strategies. The exposure remains decisively market neutral: The portfolio did not miss the bull rally while remaining able to capture relative value opportunities that should arise in future volatile market environments. We have a good pipeline of potential allocations that share the same investment philosophy with specific trading ideas in areas where competition is low. A strong focus in very narrow opportunities is paramount. Our well diversified portfolio can mitigate the embedded basis risks and the potential drawdowns, delivering stable returns and a high degree of decorrelation with the traditional markets. The current bull market has just celebrated its 8th birthday. Since March 2009, the S&P 500 has gained approximately 250%, with just four hiccups (a decline of more than ) during its upward trend. The longest bull market in modern history lasted from the fall of 1990 to the early spring of 2000, when the dotcom bubble blew up. The second longest was in the 1950s, during the babyboom age. The two bull markets ended their run at a multiple of 30 times earnings and 21 times earnings respectively. Today we are around 22. Is this the end of the cycle? We are optimistic that strong divergence of key market factors is strongly expanding our relativevalue opportunity set going forward and we are confident that our portfolio represents a very attractive alternative to overpriced financial markets and a potential shelter from the storm. We continue to prudently deploy our capital in highconviction hedge funds that may help our portfolio remain diversified and stable. Our portfolio has exposure to extremely attractive opportunity sets with a sustainable dislocation such as 1. Index rebalancing arbitrage is attractive in credit, ETFs and options. 2. Relative value opportunities in volatility caused by overregulation in the banking sector 3. Machine learning and artificial intelligence added to fast trading relative value algorithms are delivering very appealing returns 4. Experienced managers abandoning mega hedge funds to set sail on their own to exploit only the most attractive and

5 5. After a long QE freeze, specific niche versions of fixed income arbitrage with a new modern fasttrading algorithmic twist are exploiting areas which humans alone could not have possible exploited in past years 6. Crossborder idiosyncratic corporate events were plentiful and are set to explode under Trump. 7. Shortterm interest rates are extremely active as sovereign fortunes diverge We are now exploiting all these very appealing performance spaces and expect them to deliver attractive longterm returns. We are confident that our positioning is perfectly designed for these times and we are extremely selective on each of the potential investments. Our fund resides in an enviable position as it has deployed capital to managers who have demonstrated their ability to find attractive niche and capacityconstrained strategies, usually closed to new investors. The diversification of the trading opportunities is the best way to extract alpha keeping risks under control. We would like to express our deepest gratitude to all our investors and interested parties for their continued trust, patience and support. The state of the origin of the Fund is Luxembourg. This document may only be distributed in or from Switzerland to qualified investors within the meaning of Art. 10 Para. 3, 3bis and 3ter CISA. The Representative in Switzerland is ACOLIN Fund Services AG, Affolternstrasse 56, CH8050 Zurich, whilst the Paying Agent is Aquila & Co. AG, Bahnhofstrasse 28a, 8001 Zurich. The basic documents of the fund as well as the annual report may be obtained free of charge at the registered office of the Swiss Representative. Alternative investments carry substantial risks. The nature and extent of some of these risks differ from traditional investments in stocks and bonds. There can be no assurance that the advice or information provided above will lead to superior performance. In particular, the performance of an alternative investment may vary substantially over time. Investors bear the risk of losing all or part of their investment and thus should carefully consider the appropriateness of such investments for their portfolio. While the information contained in this document has been obtained from sources deemed as reliable, no representation is made as to its accuracy or completeness, and it should not be relied on as such. Past performance is not necessarily indicative of future performance. Before investing in the fund, prospective investors should read the prospectus, which may be obtained at the fund s investment manager Ayaltis AG, Bleicherweg 19, 8002 Zurich, Switzerland, ir@ayaltis.com.