The Arbitrage Fund (USD) gained 1.71% in February bringing the YTD return to 1.39% and the rolling annual return to 13.65%.
All themes and all but two managers made money during the month. The returns from the Mortgage arbitrage managers were solid. Instrument Arbitrage got back onto a more stable footing and produced a good return. Volatility contributed to the results of the Convertible arbitrage specialists, but the credit aspect of their books was obviously tricky. Government bond pricing is normally dominated by shifts in interest rate expectations. In current markets, supply squeezes of a highly unpredictable nature arise almost randomly to complicate the picture. The valuation fundamentals reassert themselves in due course, but Fixed Income Arb managers can produce a greater dispersion of results from month to month as a consequence. In February, one saw his portfolio impacted positively by this tendency and one took a small knock. The Merger Arbitrage theme made money largely as a result of the quality of the hedge positions adopted by one of the managers involved. This is an environment where good defensive skills matter.
We have also produced an additional comment for February.