The Lyxor Hedge Fund index was marginally down this week with weaker oil and dollar contributing to the underperformance of macro funds, according to Lyxor’s latest Hedge Fund Weekly Brief.
Macro funds limited damages after building-up substantial long EM FX positions prior to the FOMC; as a result, their net overall USD exposure dropped by a third.
Merger funds also lagged this week due to non-M&A energy positions. Additionally, credit funds’ returns eroded on wider energy spreads.
Elsewhere, the strategies most exposed to risk assets benefitted from encouraging global growth, hopes from Trump’s reflation, with limited US rates and dollar headwinds for now. A large majority of L/S equity funds were up, led by those focusing on EM markets. CTAs’ aggressive exposure on equities also paid off.
“The success of the moderates in Netherland only had a marginal impact on the Eurozone risk premium,” writes Lyxor’s cross asset research team. “Spreads in French, Italian and periphery govies barely changed, just like banks’ credit spreads. Hedge fund managers are not expecting a disruptive change in the French political chessboard (and hence in Europe). They are keeping most of their long exposures. Meanwhile, they maintain hedges through lower exposure to financials, indices shorts, Euro shorts, and/or a relative preference for Northern European assets. In other words, while keeping a tail-risk protection, most managers remain positioned for a valuation catch-up once the French (and Italian) political uncertainty faded.”
