The coronavirus pandemic has led to an ‘historic’ recession in the UK and Eurozone. Geraud Charpin, portfolio manager at Bluebay Asset Management, argues that protection can be found in long/short investment strategies.
The speed with which Covid-19 swept the market meant that the majority of investors found they were somewhat “stuck” with how they were positioned. Unsurprisingly, many fund managers were caught wrong footed and those who were long risk in March, would have lost five to 10% during that month without much they could do about it.
By comparison, long/short investors enjoyed a degree of protection. The nature of their investment meaning they were uncorrelated to the market; and the short end of the book offering strong performance.
The pandemic has exacerbated existing structural pressures in a number of industries such as retail (online transition from brick and mortar) and autos (transition to EV and self-driving vehicles) but also cyclical pressure for energy and materials industries. It has also added new pressures to office space (work from home transition), leisure and travel industries and exacerbated de-globalisation forcing governments and industries to rethink supply chains and outsourcing arrangements.
These are opportunities best suited to long/short strategies and are all the more precious since credit spreads have already retraced 90% of the March sell-off. With so many variables influencing this “new normal”, investors will need to reconsider and question whether long only and passive strategies are still the most appropriate in this changing environment.
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