Over recent weeks the market focus has switched from the Fed to central banks in Europe. Last week, the Swiss National bank (SNB) moved to scrap the euro cap, triggering sharp market moves on local FX and equity markets. This week, the ECB announced exceptional expansionary measures to reflate the economy. In this report we look at the implications for hedge funds and confirm what we presumed last week, i.e. the impact on hedge funds from the SNB move was rather positive for CTA/ Global Macro managers and negligible for L/S Equity.
Head of Research – Managed Account Platform
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Over recent weeks the market focus has switched from the Fed to central banks in Europe. Last week, the Swiss National bank (SNB) moved to scrap the euro cap, triggering sharp market moves on local FX and equity markets. This week, the ECB announced exceptional expansionary measures to reflate the economy. In this report we look at the implications for hedge funds and confirm what we presumed last week, i.e. the impact on hedge funds from the SNB move was rather positive for CTA/ Global Macro managers and negligible for L/S Equity.
Some CTAs posted sharp gains (the best performer is up almost 7%) thanks to important long CHF exposures; other posted moderate losses. Overall, the impact was positive, with the Lyxor Broad CTA index outperforming (yet again), up 0.8% over the week. A strong driver of gains was expectations of the ECB QE, which helped trigger a rally of European assets, both bonds and equities. Most trend-following systems are long on both asset classes and also gained from a lower Euro, losing 1.9% against the U.S. dollar during the week.
On the Global Macro side, the CHF move versus USD was not significant. Some Global macro managers have actually started the year very positively, up 4-5% for some on a year to date basis. The expansionary move from the ECB will further support their long European equities (12% of net assets) and short EUR/USD positioning (-35% of net assets).
On a negative note, Asian L/S equity managers were impacted this week by the People's Bank of China move to restrict margin trading. The local stock market suffered a 7.5% drawdown during the day of the announcement but recovered later. Since our performance data did not fully capture the rebound since then, several Asian L/S equity managers posted losses but they are likely to be erased as early as next week. We continue to believe that Asian L/S equity managers, in particular market neutral ones offer significant diversification benefits from risk on/ risk off phases in developed markets.
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