September is on track to see hedge funds delivering solid returns, on the back of the recovery of Global Macro managers and the satisfactory performance of the remaining strategies.....
25 sept 2017 - By Lyxor Cross Asset Research - The Weekly Brief
Jean-Baptiste Berthon Senior Strategist, Cross Asset Research Lyxor Asset Management
Global Macro funds faced hurdles until end-July as improving economic conditions failed to translate into rising bond yields. In parallel, monetary policy divergence between the Euro Area and the U.S. also failed to translate into Dollar appreciation versus the Euro, which many Macro funds continue to expect. But the strategy is now reaping the benefits of its positioning, which remains unchanged, i.e. constructive on the global economic outlook.
So far, most hedge fund strategies are in positive territory this month. Fixed Income Arbitrage, Event-Driven and L/S Equity strategies are up in excess of 1% so far in September. It is noteworthy that the Lyxor Event-Driven broad index is up 7% year to date, with a balanced contribution from merger arbitrage and special situations. On the merger side, positions in the health care sector contributed to gains last week. On a negative note, CTAs gave back some gains last week and stand in the red month to date as a result of trend reversals in most asset classes, except equities. Meanwhile, L/S Equity market neutral funds, which are also sensitive to trend reversals, are down 1% month to date.
Going forward, we believe that robust economic conditions, U.S. monetary policy normalization and expectations that the U.S. administration will soon move forward on fiscal reform will lead to higher bond yields in mature markets and lift the USD. In this environment, we maintain an overweight stance on Global Macro funds, a strategy that we upgraded back in June. Within the Global Macro strategy, we maintain a preference for multi-asset and EM funds compared to discretionary Fixed Income/ FX specialists. Both asset classes are likely to remain challenging to navigate as central banks remove accommodation.
We also maintain Event-Driven and Fixed Income Arbitrage at overweight, while we are more defensive on L/S Equity and CTAs, both at neutral.
September is on track to see hedge funds delivering solid returns, on the back of the recovery of Global Macro managers and the satisfactory performance of the remaining strategies. Global Macro funds faced hurdles until end-July as improving economic conditions failed to translate into rising bond yields.