O’Connor Global Multi-Strategy Alpha Monthly Letter

October saw a significant rise in bond yields on the back of stronger economic data and the upcoming US elections. The quick pace of this rise weighed on equities into month-end, and we saw systematic asset re-allocations into bonds and out of equities across the market. The sharp rise in bond volatility, as illustrated by the Merrill Lynch Option Volatility Estimate (MOVE) index (figure 1), has been a headwind for bottom-up relative value investing; however, we would expect this to normalize post US elections. Moreover, daily headlines around geopolitics and Chinese policy, combined with earnings prints, have given markets a lot to process and digest this past month.

While elections have dominated short-term sentiment, economic data has been surprising to the upside for several weeks now, as shown in the Citi Economic Surprise Index (figure 2); we believe this should provide a supportive backdrop for risk taking heading into 2025. Within equities, there have been some companies impacted by short-term cyclical uncertainties, which we believe now offer attractive value opportunities with strong growth potential as we enter 2025; other companies remain more structurally impacted by over-capacity and trade protectionism. In merger arbitrage, we expect improved regulatory certainty, lower interest rates and corporates looking to be more acquisitive as fading pricing power challenges top-line growth. Within credit, spreads remain extremely tight, but we believe we remain positioned to capture any temporary dislocation while scouring idiosyncratic opportunities. Names like Boeing and Intel show these opportunities exist.

While we have somewhat de-risked our overall portfolio heading into elections, we continue to lean into our more constructive views around merger arbitrage. We have also increased our allocation to our new commodities strategy, as we see increased opportunities for dispersion within the commodity space as we move into 2025.