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M&G Investments’ long-running Episode macro fund made 5.6% in November as investor conviction on the higher-for-longer rates outlook was tested.
The $4bn strategy, managed in London by Dave Fishwick, had its best month in three years as the “staggering shift in market perceptions” benefited its long bond positions. As of 15 December, it is up 8.5% for the year.
The gains put Episode on course for another strong calendar year, after a 16.8% advance in 2022. It is also well ahead of the macro pack, with the HFRI Macro (Total) Index down 1.6% in November and 1.8% for the first 11 months.
Fishwick told investors that the events of November and early December, with investors becoming less sure of rates remaining higher for longer, hitting bond yields, validated the Episode approach, driven by behavioural theories rather than forecasts.
“Such phases are strong adverts for why we believe that market volatility is often driven far more by changing perceptions of risk and human emotions, rather than by any changes in the underlying ‘facts’ with regards to fundamentals.”
In the run-up to last month, Episode had added exposures at the long end of the US curve in early August; more diversified long-dated government bond exposures in the US, UK and Germany at the end of September; and long five-year Treasuries and diversified emerging market bond exposures at the very start of November.
These were the main contributor to last month’s gain.
“It is difficult to overstate how surprising the calendar year has been compared with consensus views. As the most widely and confidently held economic predictions have been repeatedly challenged, the year has once again highlighted the risks to investment approaches that take such forecasts as a starting point,” added Fishwick.