Fears of an imminent rate hike in the US have faded as a result of data releases being below expectations. A number of Fed speakers also made the case for holding off on the first rate hike. As a result, the US dollar is down almost 3% against major currencies since the recent peak in mid-March, i.e. before the latest FOMC meeting. US equities have regained some colour and 10y Treasury yields have fallen by more than 20bp since mid-March.
Head of Research – Managed Account Platform
Click here to download the full report
Fears of an imminent rate hike in the US have faded as a result of data releases being below expectations. A number of Fed speakers also made the case for holding off on the first rate hike. As a result, the US dollar is down almost 3% against major currencies since the recent peak in mid-March, i.e. before the latest FOMC meeting. US equities have regained some colour and 10y Treasury yields have fallen by more than 20bp since mid-March.
Emerging markets, in particular in Asia, have largely benefited from these benign market conditions. The MSCI EM is up 12% since the FOMC meeting, fuelled in particular by China. Both the A-shares and the H-shares have skyrocketed, fuelled by expectations that China may ease further monetary policy. Q1-15 saw China's economy grow at its slowest pace since 2009, at 7% (vs Q1-14). However, the explosive growth of margin lending and strong inflows from retail investors are raising fears of overheating.
In this environment, Asian L/S equity managers, in particular long biased ones, have continued their meteoric rise. For instance, a typical long-biased Asia Pacific manager was up +10% this week, bringing the fund performance year to date above 30%. Meanwhile, US L/S Equity funds continued to show strong alpha generation at a time when European managers have found it increasingly difficult to create consistent alpha. As long as the ECB QE lifts all stocks, it suggests that the short books of European L/S are somewhat costly.
With regards to the other strategies, CTAs are again posting the top performances this week, though on a month to date basis they stand behind L/S equity. The performance of Macro managers is somewhat mixed as their short European fixed income positioning suffers while Bund yields reach an all time low. Event Driven continues to move upwards while CB Arbitrage suffers as their equity and interest rate hedges turn out to be costly.
Click here to download the full report
