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H2O’s £900m fund suffers large losses during market turmoil
Alpha 10 fall follows big performance hits to asset manager’s European funds
A $900m hedge fund run by H2O Asset Management suffered a large loss during this week’s market rout, in the latest sign of rocky performance at the London-based firm.
H2O’s Alpha 10 fund, which trades global bonds, currencies and stocks, lost 15.8 per cent in one of its share classes on Monday, according to numbers sent to investors and seen by the Financial Times.
Another share class of the fund lost 10.5 per cent that same day. Unlike most of H2O’s funds, which are domiciled in the EU, Alpha 10 is a Cayman Islands-based vehicle that does not disclose its performance publicly. The loss has not been previously reported.
It comes as another blow to H2O, which has disclosed hits to a number of its Europe-based funds during the fast-moving markets of the past few weeks. In a letter to investors this week the firm warned of “surprisingly large” losses on bets on the direction of bonds and currencies. H2O declined to comment.
H2O is a subsidiary of French bank Natixis, whose shares dropped about 16 per cent on Thursday after a 5 per cent fall on Wednesday.
On Wednesday Paul Myners, the former City minister, submitted a written question to UK parliament, asking what plans the government had to investigate H2O’s “risk control strategies and executive leadership” in light of the disclosures.
H2O, which managed $33.9bn in assets at the end of 2019, has been betting against US Treasuries, which have rallied strongly during the recent market chaos, and betting on Italian bonds as Rome grapples with the world’s second-largest outbreak of coronavirus.
In a note on Wednesday Matthew Clark, analyst at Mediobanca, wrote that while H2O’s funds have recovered from losses in the past, “the severity of the current drawdowns and, potentially, deleveraging enforced by margin calls in recent days would, in my view, plausibly diminish the chances of a V-shape recovery even should markets start to move in favour of their positions”.
The loss means Alpha 10 is now down 36.9 per cent for the year in one of its share classes and 26.1 per cent in another, putting it on track for what would rank as its worst year of performance by some distance. So far, its biggest fall in a calendar year occurred in 2016 when it lost 2.3 per cent, according to a letter to investors seen by the FT.
The letter, sent last month, also showed that the Alpha 10 fund had been adding to its bets against German Bunds and against UK gilts. Both classes of bond have rallied over the past month.
Last year H2O, which was founded by Bruno Crastes and Vincent Chailley in 2010, suffered €8bn of outflows from its funds after the FT detailed the scale of its illiquid bond holdings linked to controversial financier Lars Windhorst. Those reports prompted Lord Myners to ask the government and the financial regulator if they approved of a statement made by Mr Crastes that trading in its funds would “never” be suspended.
FRENCH PRESIDENT IS CONSIDERING SUSPENDING MUNICIPAL ELECTIONS SET FOR THIS SUNDAY - JOURNAL DU DIMANCHE PAPER'S WEBSITE
Gapping down
In reaction to disappointing earnings/guidance:
- PRTY -33.4%, INSG -15.8%, WPM -6.5%, WUBA -5%, WUBA -4.9%, BEST -4.4%, DG -1.7%
M&A news:
- ZAGG -35.3% (concludes strategic review process; determines that it will continue to operate on a standalone basis; also reported earnings)
Select travel related names showing weakness:
- CCL -15.5%, UAL -13.9%, AAL -13.3%, RCL -13.1%, NCLH -12.5%, DAL -12.2%, JBLU -10.9%, LUV -10.1%, JETS -7.3%
Select ETFs trading lower:
- XLF -6.3%, XLK -5.8%, XLI -5.5%, IGV -5.3%, XLY -5.3%, DIA -5.2%, IWM -5%, QQQ -4.9%, SPY -4.8%, XLP -4.4%, XLB -4.1%, XLV -3.8%
Select oil/gas related names showing early weakness:
- HAL -8.7%, BP -8.3%, SLB -7.1%, PSX -6.7%, XLE -5.7%, RDS.A -5.7%, TOT -4.8%, XOM -4.6%
Other news:
- CGEN -16.3% (stock offering)
- MSG -13.6% (NBA suspends season after player tests positive for coronavirus)
- NVAX -13.1% (files mixed securities shelf offering)
- CLSD -12% (announces license agreement with Arctic Vision for XIPERE in Greater China and S Korea)
- KGC -7.3% (closed its Toronto office as a precaution as employee tested positive for COVID-19)
- BBY -5.2% (discloses upcoming departure of Executive Chairman Hubert Joly)
- ATVI -4.1% (names veteran Google executive Daniel Alegre as COO
- MRK -3.7% (Update on phase 3 GY004 for cediranib and LYNPARZA in platinum-sensitive relapsed ovarian cancer; trial did not meet the primary endpoint)
Analyst comments:
- BA -14.7% (downgraded to Neutral from Overweight at JP Morgan)
- HLT -9.3% (downgraded to Market Perform from Outperform at BMO Capital Markets)
- TOL -5.4% (downgraded to Underperform from Neutral at BofA/Merrill)
- LEN -4.5% (downgraded to Neutral from Buy at BofA/Merrill)
Gapping up
In reaction to strong earnings/guidance:
- AGEN +8.1%, TACO +4.6%, SMTC +0.7%
Other news:
- TLSA +50.1% (prices follow-on offering)
- APT +42% (sees continued demand for personal protective equipment products in response to Coronavirus (Covid-19) pandemic; APT has booked approximately $22.6 mln in orders for the co's proprietary N-95 Particulate Respirator face mask since January 27, 2020)
- LAKE +15.6% (strengh attributed to continued outbreak of COVID-19)
- SIEN +13.9% (closes $60 mln convertible notes financing)
- MNK +12.5% (evaluates the potential role for inhaled nitric oxide to treat COVID-19 associated lung complications, engages with scientific, governmental and regulatory agencies)
- OI +7.9% (says its operating performance through Feb has been solid)
- EBS +5.7% (initiated two product candidates for coronavirus)
Analyst comments:
- GOLF +2.4% (upgraded to Neutral from Sell at Compass Point)
Early premarket gappers
- Gapping up:
- SIEN +13.9%, OI +7.9%, EBS +5.7%, SMTC +5.4%, TACO +4.6%, TLSA +4.1%
- Gapping down:
- ZAGG -30.4%, CGEN -16.3%, PRTY -16.2%, AAL -13.2%, CCL -12.6%, RCL -11.8%, UAL -11.6%, NCLH -11.4%, DAL -10.4%, LUV -8%, JBLU -7.6%, KGC -7.5%, BP -7.5%, JETS -7.1%, WPM -6.5%, CLSD -6.2%, SLB -5.6%, XLF -5.6%, MSG -5.5%, HAL -5.4%, PSX -5.3%, XLY -5.2%, RDS.A -5%, WUBA -5%, XLK -4.9%, DIA -4.9%, WUBA -4.9%, XLE -4.8%, QQQ -4.7%, IWM -4.7%, BBY -4.6%, XOM -4.6%, SPY -4.5%, MRK -4.2%, ATVI -4.1%, XLB -4.1%, XLI -4.1%, XLP -4.1%, XLV -4%, TOT -3.9%, IGV -3.5%, DG -2.5%, BGS -2.4%, INSG -2.2%, NVAX -2%
>>> Up
* AB InBev Raised to Outperform at RBC; PT 55 euros
* AAK Raised to Hold at Carnegie; PT 160 kronor
* ASML Raised to Outperform at Bernstein; PT 316 euros
* ASML ADRs Raised to Outperform at Bernstein; PT $352
* Assa Abloy Raised to Hold at HSBC; PT 205 kronor
* Basic-Fit Raised to Equal-Weight at Morgan Stanley; PT 30 euros
* Bayer Raised to Buy at LBBW; PT 71 euros
* Beiersdorf Raised to Buy at LBBW; PT 112 euros
* Burberry Raised to Market Perform at Bernstein
* Deutsche Boerse Raised to Buy at LBBW; PT 160 euros
* Deutsche Post Raised to Overweight at JPMorgan; PT 28.44 euros
* dormakaba Raised to Hold at HSBC; PT 555 Swiss francs
* Equinor Raised to Neutral at Citi (+)
* Ferrovial Raised to Buy at Alantra Equities; PT 28.28 euros (+)
* Galp Raised to Overweight at JPMorgan; PT 13.50 euros
* Hermes International Raised to Outperform at Bernstein
* Italgas Raised to Outperform at Mediobanca SpA
* Italgas Raised to Neutral at Citi; PT 5.20 euros
* Maersk Raised to Buy at Carnegie; PT 7,800 kroner
* MTG Raised to Buy at SEB Equities; PT 105 kronor
* Rational Raised to Buy at HSBC; PT 646 euros
* Rational Raised to Buy at Berenberg; PT 655 euros
* Software AG Raised to Buy at Baader Helvea; PT 34 euros
* Sunrise Raised to Overweight at Barclays; PT 95 Swiss francs
* Swisscom Raised to Equal-Weight at Barclays
* Thales Raised to Buy at Goldman; PT 121 euros
* Total Raised to Buy at Citi (+)
>>> Down
* Accor PT Cut to 31 euros from 44.50 euros at Oddo BHF (+)
* BP Cut to Neutral at Citi (+)
* AJ Bell Cut to Sell at Berenberg; PT 280 pence
* Cellnex Cut to Sell at Insight Investment Research; PT 54 euros
* eDreams ODIGEO Cut to Hold at Deutsche Bank; PT 4 euros
* Gem Diamonds Cut to Neutral at Citi
* Hoegh LNG Cut to Hold at SEB Equities; PT 15 kroner
* LEG Immobilien Cut to Hold at Commerzbank; PT 121 euros
* OMV Cut to Underweight at JPMorgan; PT 35 euros
* PRISA Cut to Hold at Grupo Santander; PT 1.67 euros (+)
* Repsol Cut to Neutral at JPMorgan; PT 11 euros
* Shell Cut to Neutral at JPMorgan; PT 1,750 pence
>>> Initiation
* Evolva Rated New Hold at Octavian; PT 0.25 Swiss francs (+)
* Terna Resumed Neutral at Mediobanca SpA; PT 6.20 euros
>>> Call
* AB InBev Undervalued Despite ‘Èxcessive Debt;’ RBC Upgrades
* Bernstein Upgrades U.S. Stocks, Cuts Europe on Virus Response (+)
* Basic-Fit Loses Only Sell as Concerns Addressed: Morgan Stanley
* DiaSorin’s Premium Valuation Requires Patience, Jefferies Says
* European Airports’ March Traffic Seen Down by Double Digits: RBC
* Gem Diamonds ‘Poised for Rough Times,’ Cut to Neutral at Citi
* Hermes, Prada Raised at Bernstein as Virus Goes Global
* Citi Sees Network International Revenue to Recover Next Year
* Rational a Buy; Virus Effects Only ‘Bump in the Road’: Berenberg
* Trainline Trading in Line But Visibility Low, JPMorgan Says
* U.K. Fund Platform Estimates Reset, AJ Bell Cut at Berenberg