Lumyna – Sandbar Global Equity Market Neutral UCITS

Discretionary large cap single stock alpha

Hamlin Lovell
Originally published in the February | March 2020 issue

The last two years have been challenging for many market neutral strategies. Several have been exposed to underperforming factors such as value, and/or have been whipsawed by the violent reversals in and rotations around outperforming factors like momentum, growth and quality. In contrast, Sandbar, which has no structural bias to being long or short of any styles or factors and has limited exposure to them, has generated performance close to the manager’s long run average. Since 2007, Sandbar CIO, Michael Cowley, who featured in The Hedge Fund Journal’s 2019 “Tomorrow’s Titans” report, has averaged returns of around nine percent with volatility around five and a half percent over the last decade. At Citadel he worked for another portfolio manager who has featured in the Titans report, Anchor Bolt founder, Robert Polak. 

Given average gross exposure of circa 300%, the strategy has, on average, delivered gross annual alpha of around three percent per turn of leverage. Net performance of seven and a half percent in 2019 was a shade shy of the long run average, whereas in 2018 the strategy returned 11.80% which was above the long-term annualised returns. As opposed to many long-biased managers, Sandbar naturally did not participate in the 20-30% surge in global equities, which was powered mainly by valuation multiple expansion. Cowley asserts that, “we have a structurally lower risk profile than most hedge funds, because we focus on single stock risk and minimise directional, country, sector and other factor risks”. Though a snapshot of portfolio exposures at any point in time may indicate some minor residual, factor risks, this is partly a function of how they are defined. In any case over a full year these exposures tend to prove ephemeral and their aggregate contribution to returns is minimal, based on third party analytics (from providers such as Axioma or Morgan Stanley Fund Services using MSCI Barra models). 

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