The equity and bond market selloff that took place recently took its toll on some hedge fund strategies. Due to their long fixed income stance established during 2014, CTAs sharply underperformed Macro managers during the market rout. Meanwhile, macro managers that had built up short positions on European rates in April proved overall resilient. Some macro managers were up 2 per cent last week while others, who were most exposed to European equities were down 1 per cent. In the CTA space, losses were broad based and reached high single digits in some cases.
Head of Research – Managed Account Platform
Click here to download the full report
The equity and bond market selloff that took place recently took its toll on some hedge fund strategies. Due to their long fixed income stance established during 2014, CTAs sharply underperformed Macro managers during the market rout. Meanwhile, macro managers that had built up short positions on European rates in April proved overall resilient. Some macro managers were up 2 per cent last week while others, who were most exposed to European equities were down 1 per cent. In the CTA space, losses were broad based and reached high single digits in some cases.
The bond market selloff that took place in Europe appears to be the result of several factors: rich valuations, a rebound in energy prices lifting inflation expectations and improved growth conditions in the region. However, the extent of the price action (see p.2) appears to be technical and partly related to the fact that in thinly traded markets due to the ECB QE, macro managers have been increasing their short positioning on European rates. Several prominent fixed income managers have been vocal on the opportunity to short the Bund a few weeks ago, and, from what we can see in the industry, have actually implemented these views within their portfolios.
In this environment, there have been winners and losers in the hedge fund space. As previously mentioned, macro funds outperformed CTAs. Event Driven outperformed L/S Equity and the fixed income arbitrage complex, including CB Arb. and L/S Credit, outperformed. The resiliency of Event Driven highlights the diversification benefits of the strategy. The Lyxor Event Driven Broad index lost 0.3 per cent while the S&P is down 1.2 per cent during the period under review. Credit markets to which are exposed special situations managers were actually sheltered from the selloff, with high yield spreads tightening both in Europe and in the US.
Overall the losses are manageable. The Lyxor hedge Fund index is down 1.2 per cent last week. Going forward, we stick to our guns. Our preference for short term CTAs is reiterated. In the L/S Equity space we have turned cautious on "growth" oriented managers that again underperformed. Finally, we remain overweight Event Driven.
Click here to download the full report
