Unified Global Alternatives – Hedge Fund Bulletin

Overall market commentary

Risk assets again produced broadly positive performance in October. The ongoing rally in equity markets was fueled by strength in large cap technology companies and momentum factors linked to AI names. Earnings for the quarter were also supportive of the increased valuations. The Dow Jones Industrials, S&P500 and the NASDAQ posted positive performance in October, with gains of 2.51%, 2.27% and 4.70%, respectively. The European indices generated broadly positive performance with the MSCI Europe, FTSE, DAX producing gains of 2.45%, 3.53% and 0.32%, respectively. Asian developed markets produced significantly positive results with the Nikkei 225 generating a gain of 16.6%, outpacing other developed countries. Emerging market indices also produced broadly positive performance in October. Indian, Brazilian and Chinese markets rallied 4.6%, 2.3% and 1.8%, respectively, generally supported by the broader risk-on climate. US interest rate markets rallied further, in line with expectations for dovish monetary policy. The two-year US Treasury yield fell to 3.58% from 3.61% and the ten-year US Treasury yield decreased to 4.08% from 4.15%. The Barclays US Corporate Investment Grade Index rallied 0.38% and the Barclays US Corporate High Yield Index gained 0.16% as spreads narrowed further. Commodity prices were again mixed in October with gold rising 3.2% on the back of flows into the store of value theme. Conversely, oil fell 1.6% due to concerns of a slowing global economy. In currency markets, the Euro fell 1.07% from 1.1733 to 1.1607, while the US dollar rose 4.03% against the Japanese Yen from 147.69 to 154.04.

Source returns: UBS World Market Report. As of October 31, 2025. Historical performance indications and financial market scenarios are not reliable indicators of future performance.

US Equity Hedged strategies generally produced positive performance in October. Despite another month of gains for the broad markets, a fair amount of factor rotations were also evident throughout the month. Growth stocks outpaced value, while the low quality nature of the rally resulted in notable underperformance of the quality factor and strong performance of the realized volatility factor as well as the momentum factor. Biotechnology and AI / technology sectors outperformed, while materials and financials were among the notable laggards. Alpha generation was largely manager specific as proxies suggested flat to slightly negative long / short spread at the industry level.

European Equity Hedged strategies generally produced positive performance in October. Performance was partially driven by beta on the back of a broad market rally. European-focused managers continued to underperform other regional peers as US and Asia-focused managers outperformed. Across the industry, European fundamental managers reduced their gross exposure throughout the month, while net exposure generally increased. The long / short ratio increased by +6.5% to 2.139, its 93rd percentile on a three year basis.

Asian Equity Hedged strategies generally produced positive performance in October. Performance was driven by positions in the US, Japan and AI thematic exposure, while China positions were more mixed. The Japanese market was positive in October primarily due to AI and other domestic factors, including the new Takaichi administration. The Chinese market exhibited some volatility, especially in the beginning of the month as geopolitical tension drove the market lower. The geopolitical tension stabilized later in the month as US / China tension settled down with both sides backing down on new tariffs, export controls and port fees.

HFRI Equity Hedge Total Index:

Fixed income relative value strategies generally produced positive performance in October. Most managers generated gains from global cash / futures basis and bond RV trading. Swap spread trading was mixed depending on manager positioning as US asset swap spreads widened over the month. Front end RV was also profitable with increased volatility in funding markets due to increased UST bill supply. Agency MBS themes detracted for managers with exposure in this area.

Capital structure / volatility arbitrage strategies generally produced positive performance in October. Convertible bond exposure outperformed, driven by AI, AI-related, digital assets new issuance and volatility tailwinds. Earnings were a significant factor, as well as sector / factor rotation and dispersion. In October, there were USD 12bn of new issuance, which was 2.5x the historic monthly average, bringing the YTD total to USD 138bn. Data center and AI-related firms continued to tap the convertible bond markets to raise money for AI infrastructure expansion. AI and AI-linked sub-sectors, such as power providers, hardware makers, data centers, semiconductors and AI application names, as of the end of October represent an estimated 15%-20% of global converts. While US equity capital markets (ECM) activity remained subdued in October due to earnings blackouts, government shutdown, European ECM made a few notable headlines. Significant deals included Verisure out of Sweden for EUR 3.2bn, and in the UK, Shawbrook Group successfully launched a GBP 400 IPO.

Merger arbitrage and event-driven strategies generated mixed performance in October. Through the end of October, US M&A activity for publicly traded targets was +40% and +30% by deal volume and deal count, respectively. Average annualized spreads for 0-30% deals ended at 4.1% from 5.6% at previous month-end, while median spreads ended the month at 3.3% from 4.1%. The total US spread opportunity finished the month near USD 12.5bn, which was about the same compared to the prior month-end. The average non-annualized spread to deal price ended around 3.6%, compared with 3.5% at previous month-end. Median deal spreads ended the month at 1.1%, up from 0.6%. Market capital weighted average deal spreads tightened significantly to 3.1% from 4.7%. During the month, Pfizer / Novo’s competing bid situation for Metsera was the most notable in the US.

Agency MBS generally produced a negative return in October. During the month, carry was the main source of profits but was ultimately offset by spread widening in mortgage derivatives. In particular, higher coupon, newer production inverse IOs exhibited the greatest amount of spread widening due to faster prepayment speeds.
Quantitative equity strategies generally produced positive performance in October. Manager performance reflected a significant degree of dispersion, where most approaches were challenged early in the month before recovering in the second half of the month. Overall beta weakness was more than offset by alpha gains in October. From a factor perspective, asset selection, short concentration, sector tilt (industrials and information technology), crowdedness momentum, and liquidity were among the largest alpha contributors. Partially offsetting these results were losses incurred from size, long crowdedness, and medium-term momentum. High-frequency models outperformed low-frequency counterparts during the month.

HFRI Reltive Value Total Index:

Corporate credit strategies generally produced positive performance in October. Across the corporate long / short space, most managers finished in positive territory although there was a heightened level of dispersion in terms of manager performance. Funds profited from investments in both IG and HY bonds as long investments produced gains. Conversely, short positions generally detracted from performance. The European segment of the sub-strategy exhibited the widest range of outcomes, while all of the US managers were positive for the month. The corporate long-biased sub-strategy produced mixed results. While most managers produced gains from carry, the impact of price changes varied due to both higher dispersion and the underperformance of the CCC segment of the market. Several stressed issuers in Europe underperformed.

Asset backed strategies (ABS) generally produced positive performance in October. The vast majority of funds were positive during the month as the sub-strategy benefited from exposure to both ABS and other income. At the portfolio level, interest income was the main driver, while valuations were relatively stable. At the sector level, SRT, residential real estate credit and specialty finance were the main contributors to performance.

Reinsurance / ILS strategies generally produced positive performance in October. Results were mainly a function of seasonally elevated premium accrual for the collateralized reinsurance manager and a combination of coupon income and typical seasonal price appreciation via spread tightening for the cat bond manager. There were no material events that affected our managers during the month. While Hurricane Melissa produced widespread devastation across Jamaica, insurance penetration was low. A parametric cat bond that references minimum pressure readings was triggered as a full loss by the storm, but our cat bond manager did not own this particular bond.

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Discretionary trading strategies generally produced positive performance in October. For developed market funds, the interest rates themes delivered gains primarily through UK receivers. EUR and US rates generated mixed returns, while Japan shorts and flatteners largely detracted. Curve steepeners were also more challenged across G3, with the exception of some smaller gains on the back end of EUR curves. Equities were a notable driver of gains, largely on the back of thematic trades such as technology, financials and energy, while EU defense detracted. Some managers also produced gains across Asia markets, with a mix of long positions in Japan and technology in other countries. In FX, performance was more muted, with some dispersion of results in JPY depending on manager positioning. Some small gains were generated from shorts in EUR and GBP, while long positions in FX volatility detracted. Commodities were generally positive, mostly from metals, including long positions in gold and copper. Emerging market managers also produced positive results. Carry trades in frontier markets were notable drivers of positive performance. The recovery in Argentina also helped some of the managers that had positions across credit and / or equities. EM rates performance was somewhat more mixed, with gains across Latam and most of CEEMEA receivers, which was offset from positions in some of the Asian markets, particularly in Korea. Similarly in developed market rates, some managers benefitted from long positions in the UK and EU markets, but gave back a bit of performance in paid positions in some of the developed market Asia markets and G3 curve steepeners. In FX, outside of frontier carry, gains were generated from GBP shorts, while losses were incurred from KRW, JPY and Latam long positions and HKD shorts.

Systematic trading strategies generally produced positive performance in October. Traditional trend following CTAs continued their positive run in October, with many erasing the losses incurred during the first half of the year and turning positive YTD. More trend-heavy implementations were positive on the back of equities and metals exposures. Within the sub-group, managers with the highest realized beta to the MSCI World index were among the top performers. More diversified implementations across both markets and signals, outperformed. Alternative trend followers were more challenged. Trends in emerging market equity indices and fixed income drove gains, while commodities, after being challenged for most of the month, were additive to performance. FX detracted, which was mostly challenged by the short USD exposure, with short developed market equity themes also negative for the month.

Source: UGA - Hedge Funds, HFR. For illustrative purpose only. As of October 31, 2025. Historical performance indications and financial market scenarios are not reliable indicators of future performance.

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