Thu, 05/12/2013 - 06:02
A continuing rally in equity markets remains a prominent theme as we head into December, but there are also other sizeable trade ideas today across hedge funds, says Anthony Lawler, portfolio manager at GAM.
“Hedge fund managers continue to like US and select European equities from both a fundamental long, as well as a long/short perspective, given the Fed’s accommodative stance and the European Central Bank announcing a surprise rate cut in early November. But other high-conviction trades remain in place, including the Japanese reflation theme expressed through short Japanese yen and JGBs and long Japanese equities.
“Continued concern about emerging market growth rates is being partly expressed through Australian dollar shorts and emerging market credit shorts. We anticipate that some managers will perform going into year-end and in 2014 if US and European equity markets continue to be supportive and the market rewards the fundamentals of strong companies while punishing weaker ones. Other supporting factors could include: corporate events accelerate next year, as they did earlier this year; Japan continuing to credibly reflate; and growth in the emerging markets trending weaker.”
In November, as we have seen for much of 2013, equity markets continued to be a primary beneficiary of easy monetary policy, says Lawler. This supportive backdrop helped equity hedge and event driven managers once again outperform other hedge fund strategies, according to HFRX strategy index returns.
The HFRX Equity Hedge index was up 1.0 per cent and the HFRX Event Driven index was up 0.6 per cent, while the respective relative value and macro / CTA indices were also positive on the month. These returns take the year-to-date performance for the equity hedge index and the event driven index to 9.8 per cent and 13.5 per cent, respectively.
December is seasonally a quiet month in markets and has started with managers running slightly reduced risk levels, according to Lawler.
“We have seen managers reduce both gross and net exposure coming into December when markets tend to trade on lower volumes. A number of managers are expecting a slow month in equities, while some managers have left their currency positions unadjusted in case we see a breakout in the Japanese yen or Australian dollar, for example.”
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