PR OFILE
Fig.1 Growth of $100 Since Inception (September 1st, 2016)
$90 $100 $110 $120 $130 $140 $150 $160 $170 $180 $190 $200 $210 $220 $230
Sona L/S Credit Strategy Pan-European Aggregate Markit iBoxx EUR Liquid HY EURO STOXX 50 STOXX Europe 600
Source: Sona Asset Management
moved more towards high yield, a net short stance and generally greater dispersion and differentiation within credit markets: “Going forward less central bank intervention and secular European challenges are a very good backdrop,” says Aylward.
In 2019, longs and high yield contributed most, but even then, three of the top ten trades were shorts. In early 2020, the book was broadly balanced entering Covid, and having shorts in place ahead of the crisis helped the strategy to end March 2020 with positive performance and limit its intra-month drawdown to below 1%. Sona also had dry powder to take advantage of volatility including the sharp selloff in investment grade credit and a lack of discrimination that perversely saw some more
liquid but Covid resilient names sell off harder than some less liquid but Covid sensitive names. “We had the confidence and liquidity to execute and trade,” says Aylward. In 2021, the strategy profited mainly from single name selection on long and short sides amid record tight spreads. Towards the end of the year, Sona became alert to inflation and supply chain challenges and started reconfiguring the portfolio, which has continued performing well in 2022. By April 2022, the opportunity set had
Short exposure and long volatility The strategy is not market neutral, though its net credit beta exposure, historically fluctuating between +30% and -30%, has been comparable to, or tighter than, some strategies that are labelled as “market neutral”; the range hitherto is not a hard limit and is open for discussion. Shorts are intended to generate alpha even if they are not always absolute profit centres. It is sometimes sufficient for shorts to underperform credit markets and generate positive alpha; similarly in a climate like the first four months of 2022, longs in absolute terms might lose less than the wider market and the short book. The liquid strategy emphasizes trading rather than clipping income. The carry of the book could be positive or negative to the tune of tens of basis points per month and has been slightly negative most of the time: “Being long of volatility, optionality and convexity, can sometimes entail a degree of negative carry. Sometimes we get it for free and sometimes we pay for it,” says Aylward.
Feeling the pulse of markets Sona has a mix of longer term, strategic trades, and shorter term, tactical trades, and is unrestricted most of the time. It has its finger on the pulse of
Fig.2 Uncorrelated Positive Performance: Sona average returns in up and down markets THESEINDICES HAVE AVERAGEMONTHLY RETURNSOF… When the below index has a positive return
Pan-EuropeanAggregate(+) Markit iBoxx EURLiquid High Yield (+) BarcUSAgg (+) BarcUSHY(+) S&P 500 (+)
SONA
1.40% 1.23% 1.88% 1.25% 1.20%
PAN-EUROPEAN AGGREGATE*
0.62% 0.53% 0.66% 0.48% 0.39%
MARKIT IBOXX EURLIQUID HY
BARCLAYS US AGG*
0.97%0.18% 1.03%0.17% 1.17%0.31% 0.87%0.16% 0.67%0.15%
THESE INDICES HAVE AVERAGE MONTHLY RETURNS OF…
When the below index has a negative return Pan-European Aggregate (-)
Markit iBoxx EUR Liquid High Yield (-) BarcUSAgg (-) BarcUSHY (-) S&P 500 (-)
SONA
0.88% 1.15% 0.83% 1.07% 1.17%
SONA EU CREDIT L/S
Correlations - SinceInception
PAN-EUROPEAN AGGREGATE*
-0.75% -0.65% -1.03% -0.82% -0.87%
PAN-EUROPEAN AGGREGATE*
MARKIT IBOXX EURLIQUID HY
-1.13% -1.32% -1.79% -1.50% -1.46%
MARKIT IBOXX EUR LIQUID HY
BARCLAYS US AGG*
-0.24% -0.24% -0.55% -0.33% -0.40%
BARCLAYS US AGG*
BARCLAYS US HY
-0.93% -1.21% -1.76% -1.61% -1.70%
BARCLAYS US HY S&P 500
-1.13% -1.81% -3.76% -2.51% -4.83%
S&P 500 -0.230.150.190.090.26
Returns and data reflect the Sona European Credit Long/Short Strategy which is composed of the Separately Managed Account (SMA) structure from September 2016 to January 2020 and the Sona Credit Master Fund Ltd., Class A1 from February 2020 onward. These returns are net of all fees and expenses and may not be replicated in any future fund structure. Returns have not been independently audited. Past performance is not indicative of future results. The results above could be different if other assumptions about fee structures were applied. * Excess Returns (returns based on movements in credit spread). Source: Sona Asset Management, data as of 31.05.2022
BARCLAYS US HY S&P 500
1.17%2.72% 1.29%3.04% 1.41%3.45% 1.20%2.85% 1.02%3.19%
Source: Sona Asset Management
10
Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 May-18 Jul-18 Sep-18 Nov-18 Jan-19 Mar-19 May-19 Jul-19 Sep-19 Nov-19 Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22
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