Hedge fund performance was mixed across strategies in May, according to the latest date released by Lyxor, with Event Driven funds extending their winning streak, while Macro strategies underperformed on the back of long positions on the USD and hard commodities.
The other hedge fund strategies delivered positive returns.
Merger Arbitrage managers outperformed Special Situations in May. A number of M&A deal positions paid off as spreads narrowed. That included investments on NXP Semiconductors, Straight Path Communication and Syngenta to name a few. On the Special Situations side, the strong earnings season bolstered returns for several core positions such as Sotheby’s, Baxter International and Willis Tower Watsen. Yet, investments in energy and financial sectors partially offset these progresses. Event Driven funds continued to increase their net exposure to equities, with a preference for US equities. The strengthened exposure to Europe resulted from individual stock opportunities. Managers were not taking a macro bet on the euro-zone recovery.
L/S Equity funds delivered mixed and heterogeneous results. The tilt towards cyclicals vs defensives proved detrimental for most of managers. The most variable managers led the pack, supported by the still positive momentum in equities. On the flip side, market neutral funds, which have a longer term horizon and a stronger focus on value, underperformed. In terms of portfolio positioning, US funds decreased their net long exposure to equities amid fading US growth momentum. European managers strengthened their allocation on financials and consumer cyclical on the back of the strong economic upturn.
CTAs witnessed a rollercoaster month, but ended in positive territory. The upward trend in equities and the weakening of the sovereign bond yields in most regions bolstered models’ performance. Throughout the month, models adjusted their portfolios, in FX especially. They built-up short positions on USD vs. EUR, and cut their short GBP. At the end of the period, the bulk of their commodity exposure was concentrated on agricultural shorts, with reduced short on energy.
The performance of Global Macro was uninspiring, although returns were disparate across managers. Overall, almost all portfolios delivered disappointing returns. Relative value trades on equities (short US, long Europe) were detrimental as the market moved in the opposite direction. Longs on Brazilian real vs. USD and shorts on DM crosses (EUR and JPY especially) were painful. The fixed income portfolios brought mixed results. The weakening yields rewarded long positions on US bonds but hit European and UK short duration.
“Fading political risks, evidence of economic growth, positive flows and prospects of ECB normalisation all contributed to send the Euro in the top G10 charts in H1,” says Jean-Baptiste Berthon (pictured), Senior Cross-asset Strategist, Lyxor Asset Management. “Although investors remain underweight Euro-assets, the pricing of these improving fundamentals seem well advanced. The near-term upside might be limited.
“Tectonics in currencies and rich govies are opening appealing relative opportunities for Fixed Income funds. CTAs funds could also benefit, once they completed their ongoing repositioning.”
