The sharp outperformance of technology stocks, which represent 23 per cent of the the S&P 500 currently, lifted the index to new records last week, according to the latest weekly brief by Lyxor’s Cross Asset Research team.
In turn, the MSCI World also reached new records, considering the huge weight of US stocks (59 per cent) in the benchmark. The latest leg of the global equity rally is taking place in the context of the Q2 earnings season in the US, which has proved particularly good for technology companies so far. According to Bloomberg, 8 technology companies already reported Q2 earnings and the aggregate earnings surprise (the gap between actual and expected earnings) is close to 20 per cent. Valuation metrics signal the valuation of the sector is not overextended
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Philippe Ferreira (pictured), Senior Cross Asset Strategist of Lyxor writes: “These market developments have had significant implications for hedge fund performance. The long positions of Event-Driven and L/S Equity funds to technology stocks have been rewarded and contribute to explain why both strategies outperformed last week. The so-called FANG stocks (Facebook, Amazon, Netflix, and Alphabet) are among the most preferred names by fundamental stock pickers. Event-Driven funds also benefitted from positions in the consumer non cyclical and communications sectors. CTAs delivered positive returns after a troubled start to the month, as part of their long positions on both equities and fixed income. Long positions on the Euro versus the US Dollar also contributed positively. On a negative note, Global Macro suffered losses related to the rise of the EUR vs. USD and the underperformance of European stocks vs. the S&P 500. Long agricultural commodities and short fixed income positions detracted from performance for some managers as well.
“Going forward, we maintain an overweight stance on Event-Driven and Fixed Income Arbitrage. We also reiterate the overweight stance on EM focused macro managers. In parallel, we advise an underweight stance on CTAs and L/S Equity market neutral strategies. Finally, we have L/S Equity and L/S Credit at neutral.”
