Farview's Quarterly Letter
Q3 2024
Performance Update
Farview Global Alpha delivered a return of 1.68%1 for the last quarter, bringing the year-to-date return to 5.02% and the 1-year return to 6.58%. This performance was achieved with low volatility, approximately 1.5%, resulting in a Sharpe ratio of 0.85. Notably, while equities experienced a strong rally of about 20% during this period, Farview Global Alpha was largely unaffected, with a near-zero correlation to equities. This demonstrates the fund’s ability to generate returns from independent sources of risk premia, aligned with its objectives.
The fund’s independence from traditional asset classes is further evident in its low correlation to both equities and fixed income. Even on a monthly basis, the fund posted positive returns, regardless of whether equities were performing positively or negatively.
A key aspect of managing a successful multi-strategy fund is constructing a portfolio with low correlation among the various sub-strategies to maximize diversification. The table below demonstrates that the correlations between the fund's strategies are generally very low, and have remained stable over this period. This consistency is not due to chance, but to careful portfolio construction, which focuses on niche investment strategies capturing independent risk premia globally.
The impact of this approach is reflected in a significant reduction in portfolio volatility—over 60%—which directly boosts the Sharpe ratio.
This underscores the importance of both manager selection and robust portfolio construction in achieving efficient portfolio outcomes.
Portfolio Review
Our allocation to Event Driven strategies in Europe has been a strong contributor to performance, adding 38 basis points with an absolute return of approximately 4.4% since we initiated the allocation in late June 2024. This positive outcome has been driven by a notable rebound in mergers and acquisitions (M&A) activity, which has seen deal volumes increase by more than 50% compared to 2023, with Europe being a particularly active region.
The European M&A market is especially attractive because it often features a larger number of opportunities in the mid-cap segment. These deals tend to fly under the radar of larger investors, particularly US based funds, and can offer compelling risk-adjusted returns. The spreads in this market have been around 14% on an annualized basis, with an average deal duration of approximately six months.
Furthermore, our strategic focus on more complex transactions has proven to be advantageous. These deals, which may involve regulatory hurdles, cross-border considerations, or other complexities, typically offer higher spreads to compensate for the additional risks and uncertainties. In the current environment, we have seen a significant uptick in the number of such complex deals coming to market.
Another allocation that has supported our portfolio during the third quarter is our allocation to a Balanced fund. This fund’s investment program does not use traditional sources of leverage, but instead designs its portfolio to provide growth in moments of market exuberance and provide protection in moments of traditional market weakness. Early in August, for example, when global markets experienced large spikes in volatility, this fund had protections in place to provide positive performance support to Farview Alpha, and managed to provide strong absolute numbers in the quarter, being the second-best performing fund and best performing strategy in Q3. Winners for the strategy include long positions in gold mining equities, investment in interest rate sensitive assets and exposure to the Japanese Yen.
Our Equity Market Neutral portfolio has continued to provide consistently positive returns to Farview Alpha. Our Environmental-focused fund outperformed our other allocations, on back of a highly diversified portfolio and low beta-adjusted net exposures, it was up over 5% in the quarter and added 81bps to Farview Alpha. Our Global Allocation and Asia-focused allocation also contributed positively to returns and the strategy contribution totalled 1.15% in the quarter.
The fund’s Convertible Arbitrage allocation benefited from an improved convertible market basis. Certain investments provided strong results, including the investment in the Gol Linhas Aereas/Abra Global complex whose bonds continue to improve as the company restructures. The interest rate cutting program by the US Federal reserve is also anticipated to provide a tailwind for the strategy in the months ahead, by providing lower funding costs, valuation gains and higher new issuance activity.
Finally, the Global Macro allocation, one of the lower weights in Farview Alpha, provided a small drag to performance with a negative contribution in Q3. The strategy typically suffers in moments of large macro shifts, and Q3 provided a challenging environment for the fund with periods of sharp reversals in equity, fixed income, and commodity markets as well as US dollar. While this fund tends to benefit from tactical trading in equity and fixed income markets, the strategy still ended the quarter in somewhat negative territory.
Looking ahead
Looking ahead, we face a complex environment marked by tight credit spreads and elevated price-to-earnings (PE) ratios relative to long-term historical averages. For instance, in US High Yield (HY) fixed income, current spreads hover around 3%, while yields are approximately 7%, even before accounting for potential defaults. This compressed spread offers little cushion for risk, and it is noteworthy that credit spreads present high correlations with equities reducing any diversification benefits.
In equities, the picture has also shifted. Prior to the recent market correction, high valuations—particularly in the U.S.—and the narrowing breadth of market leadership raised concerns among our investors about the outlook. While corporate profits remain robust and are expected to rise this year across most regions, the pace of growth is decelerating. Moreover, forecasts for continued earnings growth into 2025 are increasingly being viewed as optimistic, if not aggressive.
As a result, many investors are adopting a more cautious approach, favoring defensive stocks, high-quality names, and value-oriented strategies. There is also growing skepticism about the current enthusiasm surrounding artificial intelligence (AI), with some suggesting that this theme may have reached excessive levels in the short term. In light of these elevated valuations and concentrated market drivers, the case for reducing exposure to overbought sectors and increasing diversification becomes even stronger.
Historically, diversification-focused strategies, like Farview Alpha, were expected to provide lower returns than traditional asset classes in exchange for offering portfolio protection through uncorrelated returns. However, given the current state of the markets, this trade-off is less apparent. With credit spreads compressed and equity valuations high, the premium traditionally paid for accessing independent sources of risk premia, like those offered by Farview Alpha, may actually provide superior risk-adjusted returns compared to overvalued traditional assets.
In this environment, Farview Alpha’s ability to generate returns from diverse, uncorrelated strategies offers a clear advantage. By capturing independent risk premia, the fund provides both potential upside and crucial diversification benefits, mitigating the risks associated with concentrated equity and fixed-income exposures. This reinforces the value of a well-constructed multi-strategy portfolio, as the search for uncorrelated, high-quality returns becomes more critical amid tightening spreads and lofty equity valuations. Farview Alpha stands out as a compelling choice, as it offers the opportunity for strong performance without relying on the increasingly uncertain outcomes in traditional asset markets.
Important Disclaimer: This information is solely intended for the use of professional clients only. It is not for general public distribution. This is a summary of some of the key features of the Farview Alpha Multi-Strategy Fund. Prospective investors should read the applicable offering memorandum, articles of association or other constitutional document and the applicable subscription agreement relating to the purchase of shares or interests in such Fund. This document provides a general overview of strategies proposed by Farview Investimentos (“Farview”) (references to “this document” in this Important Information section shall include this presentation document and any associated documentation, including cover email or cover letter documentation, delivered with it). This document is qualified in its entirety by reference to the applicable offering memorandum, articles of association or other constitutional document and the applicable subscription agreement relating to the purchase of shares or interests in such Fund. Recipients should form their own assessment and take independent professional advice on the merits of investment and the legal, regulatory, tax and investment consequences and risks of so doing. In preparing this document, Farview has relied upon and assumed, without independent verification, the accuracy and completeness of all information available from public sources or which was otherwise used in the preparation of this document. Farview, and any Fund, accept no responsibility to any person for the consequences of any person placing reliance on the content of this document for any purpose. Neither Farview nor any Fund is under any obligation to update the information contained in this document. Past performance information contained in this document is not an indication of future performance. This document has not been audited or verified by an independent party and should not be seen as any indication of returns which might be received by investors in any Fund. Where projections, forecasts, targeted or illustrative returns or related statements or expressions of opinion are given (“Forward Looking Information”) they should not be regarded by any recipient of this document as a guarantee, prediction or definitive statement of fact or probability. Actual events and circumstances are difficult or impossible to predict and will differ from assumptions. A number of factors, in addition to any risk factors stated in this document, could cause actual results to differ materially from those in any Forward Looking Information. There can be no assurance that any Fund’s investment strategy or objective will be achieved or that investors will receive a return of the amount invested.
This document has not been reviewed or approved by any regulatory authority. This document is not intended to be, nor shall it be construed as, an offer, or a solicitation of an offer, to buy or sell shares or interests of whatever kind, nor to buy or sell shares or interests in any Fund. In the United Kingdom, this communication is being made only to, or directed only at, persons who are: (i) investment professionals within the meaning of Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 ("FP Order"); (ii) high net worth companies and certain other entities falling within Article 49 of the FP Order; or (iii) any other persons to whom such communication may lawfully be made. It must not be acted, or relied, upon by any other persons. It is not anticipated that shares or interests in the Fund (“Interests”) will be registered under the US Securities Act of 1933, as amended (the “Securities Act”), or the securities laws of any of the states of the United States. Accordingly, Interests will not be offered, sold or delivered directly or indirectly in the United States or to or for the account or benefit of any US Person (as defined in Regulation S promulgated under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and any applicable state laws. Interests may be offered outside the United States pursuant to the exemption from registration under Regulation S promulgated under the Securities Act and inside the United States in reliance on Regulation D promulgated under the Securities Act. It is not anticipated that the Fund will be registered under the US Investment Company Act of 1940, as amended (the “Investment Company Act”). Any subscriber for Interests that is a US Person will be required to certify that it is an “accredited investor”, as defined in Regulation D promulgated under the Securities Act, and a “qualified purchaser”, as defined in the Investment Company Act. Direct or indirect acquisition or ownership of Interests by US Persons without compliance with applicable US securities laws or in contravention of the relevant provisions of the constituent documents of the Fund will be prohibited. FARVIEW INVESTIMENTOS LTDA. (“Farview”) is a company duly authorized by Comissão de Valores Mobiliários (CVM) to carry out the activity of managing securities portfolios, in the category “asset manager” and institution adhering to ANBIMA’s self-regulation codes. Farview does not sell or distribute shares of investment funds or any other financial asset. Farview is not responsible for errors, omissions or inaccuracies in the content of the information disclosed nor for investment decisions made based on this document.
Performance is net of all fees and expenses, although it has not been audited. The manager has taken the initiative to cover all costs (not related to investment manager fees), such as auditor fees, directors fees, administrator fees, among others, until the assets under management of the fund reach a specific target.