The portfolio rose +0.5% net of costs in April, which was disappointing given the 10%+ rally in equity markets.
Of the three risk 'buckets' - rates, FX & equity - equity was the only positive contributor. The portfolio's Chinese & UK equity call options rose 39% and 36% respectively. However, the decision taken at the beginning of the month to pre-empt "sell in May" with FTSE 100 June puts, reduced the equity contribution to the bottom line to c. +6%.
In rates, TBT (short 20+ year US Treasury ETF) turned around previous negative performance, adding 13% as Treasury yields went into reverse on renewed risk seeking. However, the portfolio's Gilt holdings offset this as Gilt yields rose above 3.5% on supply & debt:GDP concerns. With the 10 year Gilt yield at c. 3.7% and an additional £50 billion in the Bank of England's APF, the risk reward ratio appears skewed in favour of maintaining long Gilt positions. For further insight on the reassessment of the Gilt market, see Reassessing Gilts: don't panic Mr Mainwaring! and When in trouble, double!.
The portfolio's FX investments, namely long USDJPY and gold investments suffered at the hands of 'animal spirits' as save haven assets bore the brunt of the return of 'animal spirits'. However, the portfolio's USD hedge compensated as the Dollar fell 3% against Sterling, breaching 1.47 in the process.
Overall, it was a difficult month for the views expressed in the portfolio, although by no means a disaster since the portfolio was up on the month. Indeed, May is shaping up to be another good month with the portfolio up c. 4.5% month to date. Volatility declined over the month to 35%, and continues to do so, enabling the portfolio's risk budget to be increased. Short GBPNOK and extending Gilt duration look like possible candidates for implementation...
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