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Hedge funds gear up for ECB action, says Lyxor

Ahead of this week’s ECB monetary policy meeting, hedge funds are cutting positions on the common currency in the anticipation of the central bank adopting expansionary measures, according to Philippe Ferreira, head of research at Lyxor’s managed account platform (MAP).

Options for the Frankfurt-based institution involve a cut of the main policy rate; a cut in the deposit rate to negative territory; and the adoption of unconventional measures such as outright quantitative easing, LTRO and ABS purchases.
 
Both CTAs and global macro funds recently cut exposures to the EUR vs USD, though the former remain long EUR in net terms. This is taking place in an environment that saw the greenback rising against major currencies in May (except the JPY).
 
With regards to recent performance, equities rallied last week, with positive implications for equity-oriented strategies (event driven, L/S equity).
 
Meanwhile L/S credit remained resilient, despite the 10bp rise in high yield spreads in Europe and the US in May. Convertibles and volatility arbitrage gave up some gains this week, as a result of shrinking equity volatility.
 
As the month of May draws to an end the old adage ‘Sell in May and Go Away’ proved wrong. The Lyxor Hedge Fund Index is up almost one per cent and long term CTAs outperformed though they remain in the red year to date. On a year to date basis, L/S credit and fixed income continues to lead the pack.


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