Heading into the summer break, companies have continued to report earnings above expectations, especially in Europe. In the US, health care and consumer goods & services companies posted solid earnings, beating expectations as well. Yet, risk assets were under pressure, leading to negative returns for hedge funds this week.
Head of Research – Managed Account Platform
Click here to download the full report.
Heading into the summer break, companies have continued to report earnings above expectations, especially in Europe. In the US, health care and consumer goods & services companies posted solid earnings, beating expectations as well. Yet, risk assets were under pressure, leading to negative returns for hedge funds this week. Such headwinds are nonetheless likely to be short term and need to be replaced in the context of thinly traded markets amid somewhat disappointing earnings releases in the US. Overall, the Lyxor Hedge Fund Index is down this week (-0.8 per cent), but remains in positive territory in July (0.7 per cent).
Event Driven managers underperformed, both last week (-0.9 per cent) and in July (-0.6 per cent), partly as a result of exposures to commodity-related sectors. However, positive developments on health care, a sector on which the strategy retains sizeable exposures, are supportive. Earnings were quite upbeat across the board and pharmaceutical giants such as Pfizer revised upwards the outlook. Meanwhile the M&A frenzy continues. Teva Pharmaceutical announced another mega deal to acquire Allergan’s generic drug business. The cash-and-stock transaction values the business at USD40.5bn, one of the top ten deals announced this year worldwide. Managers have had a long exposure to the company and benefited from the rebound of Teva’s stockprice. Overall, we maintain our neutral stance on the strategy (we downgraded it early June) but consider the prospects are improving.
On the other side of the spectrum, CTAs continued to outperform last week (-0.2 per cent), confirming their solid performance in July (2.6 per cent). As discussed last week, part of this performance is related to short commodity and long fixed income exposures. We maintain our overweight stance on the strategy as FX and commodity trends are likely to continue to be supportive going forward.
Finally, L/S Equity struggled, in particular Asian managers. The earnings season in China caused substantial volatility in stock prices, especially in financial and energy sectors. On the positive side, market neutral L/S Equity, a strategy on which we are strong overweight, outperformed across the regions.
Click here to download the full report
