are Oil prices the Only Force Pushing Rates Higher?
Sam Acton, CFA - Portfolio Manager, Co-Head Fixed Income
When everything sells off at once, where does opportunity hide?
Jeff Bradacs, CFA Co-Head Equity Strategies, Head of Portfolio Management & Trading
To understand the dislocation we saw in March, it helps to start with the setup.
Coming into the year, gross exposures had steadily increased across market participants, from systematic strategies to fundamental investors and other active allocators. That, in itself, wasn't necessarily a concern, but it did leave markets more vulnerable than they appeared on the surface to an unexpected external shock. That shock came in the form of geopolitical escalation in the Middle East at the start of March, which triggered a sharp and largely indiscriminate unwind across the market.
Faced with a macro backdrop offering little clear signal, we focused first on risk management. We reduced the portfolio's sensitivity to cyclical and macro-driven outcomes, not because we had a strong directional view, but because the range of potential outcomes had widened materially. When the macro path becomes highly uncertain, discipline matters more than conviction.
As high-quality businesses sold off alongside the broader market, often with no meaningful change in earnings expectations or business fundamentals, selective opportunities emerged to add exposure at materially better prices. At the same time, some weaker businesses share prices strengthened as the market fell largely due to technical factors such as de-grossing and short covering, rather than improving fundamentals, creating opportunity on the short side as well.
Re-risking was not broad-based; capital flowed disproportionately back into AI-related themes and sectors less exposed to the conflict. Higher-quality positions recovered, while structurally weaker names lagged.
The broader lesson from March is that periods of forced de-grossing often create temporary disconnects between price and fundamentals. Historically, these environments have created some of the most attractive setups for market-neutral strategies, where volatility is not just something to manage, but a source of opportunity.
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