Stockholm (HedgeNordic) – Following a strong performance in the challenging market conditions of 2022, Brummer Multi-Strategy faced a tougher year in 2023, ending almost flat. Into the new year, the team behind Brummer Multi-Strategy outlines their intention to further enhance diversification and the amount of idiosyncratic risk in the portfolio by introducing new strategies. They are currently reviewing market-neutral sector specialists, but also looking into fixed-income-focused strategies, and exploring opportunities in commodities.

Brummer Multi-Strategy maintains a diversified portfolio of strategies managed by independent teams within Brummer & Partners, spanning three strategy groups: long/short equity, systematic macro, and systematic trend. As of the end of 2023, about 62 percent of the portfolio was allocated to long/short equity strategies, 25 percent to systematic trend-following, and the remainder to systematic macro. The muted performance of Brummer Multi-Strategy in 2023 can be attributed to the difficulties faced by systematic trend-following strategies. Despite their record-beating performance in 2022, systematic trend-followers within Brummer Multi-Strategy and the wider industry encountered challenges in 2023.

“Last year was in general difficult for our systematic trend-following strategies given the choppy market environment in fixed income, currencies, and commodities, with market narratives shifting back and forth several times throughout the year,” explains Kerim Celebi, Portfolio Manager of Brummer Multi-Strategy. Celebi notes that the systematic trend-following strategies in their portfolio utilize slightly faster models compared to their peers and maintain low exposure to various risk premia. “The relatively high speed provides positive convexity and improves adaptivity to regime shifts, but can be costly in a choppy market environment like 2023,” acknowledges Celebi. “We see these costs a bit similar to paying insurance premia.”

“Last year was in general difficult for our systematic trend-following strategies given the choppy market environment…”

In contrast, systematic macro strategies performed well, generating strong alpha from relative value trades across various asset classes, with commodities emerging as the best-performing sector. Fundamental long/short equity strategies also generated alpha in both the bear market of 2022 and the bull market of 2023. However, Celebi acknowledges that “2023 was, in general, a difficult year for fundamental stock-pickers given poor market breadth throughout the year up until the last quarter and markets more driven by macroeconomic factors like Inflation and rates, rather than stock specific fundamentals.” Anticipating a shift towards a focus on bottom-up stock-specific fundamentals from the previous top-down macroeconomic emphasis, Celebi foresees a more conducive operating environment for long/short equity strategies moving forward.

Enhancing Portfolio Diversification: Market-Neutral Specialists, Commodities and Credit

In response to market uncertainties and opportunities, the Brummer Multi-Strategy team is working on improving portfolio diversification and adding idiosyncratic risk with the addition of more strategies. “Our primary goal is to continue enhancing the robustness of our portfolio by improving diversification and increasing the amount of idiosyncratic risk,” says Celebi.

“Our primary goal is to continue enhancing the robustness of our portfolio by improving diversification and increasing the amount of idiosyncratic risk.”

To achieve this goal, Brummer Multi-Strategy is expanding its sector expertise and geographical reach within the long/short equity segment by introducing two new market-neutral strategies: one focusing on global technology and consumer sectors, and the other specializing in Nordic markets with a focus on forensic accounting research on the short side. Additionally, the team aims to include more market-neutral sector specialists in areas where the fund currently has limited exposure.

“…we would like to increase our risk allocation to commodities overall and add other complementary, discretionary trading approaches.”

Furthermore, the team is exploring opportunities to integrate more exposure to commodities into the portfolio. “We currently trade commodities from a systematic perspective both using trend-following models to capture some of the larger moves and also from a relative value standpoint using other technical, non-momentum signals to capture some of the smaller more idiosyncratic relative moves,” says Celebi. “But we would like to increase our risk allocation to commodities overall and add other complementary, discretionary trading approaches.”

“We would like to add a few more strategies and run the portfolio closer to 14 or 15 strategies/teams going forward.”

Beyond commodities, the team is considering other strategy types such as fixed-income relative value and long/short credit strategies. “We would like to add a few more strategies and run the portfolio closer to 14 or 15 strategies/teams going forward,” says Celebi. “We remain committed to adapting to the ever-changing market environment and partnering with top-tier investment teams to continue to enhance our portfolio’s risk-adjusted performance,” he concludes.