Hedge funds acted as shock absorbers during the wide market gyrations recorded at the beginning of 2015. This year started with a large risk-off move and high volatility on all asset classes. Along with oil prices and rates, equities went sharply down as economic activity was below expectations in December and a potential Greek exit is making the headlines again in Europe. The US dollar posted strong gains, especially against the Euro, fuelled by the expectations that the ECB will find a consensus to adopt expansionary measures as the Eurozone entered deflation.
Head of Research – Managed Account Platform
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Hedge funds acted as shock absorbers during the wide market gyrations recorded at the beginning of 2015. This year started with a large risk-off move and high volatility on all asset classes. Along with oil prices and rates, equities went sharply down as economic activity was below expectations in December and a potential Greek exit is making the headlines again in Europe. The US dollar posted strong gains, especially against the Euro, fuelled by the expectations that the ECB will find a consensus to adopt expansionary measures as the Eurozone entered deflation.
Although the release of the minutes of the 16-17 FOMC meeting provided some relief, if the first week of the year can give any sense of the upcoming market conditions, we are facing more challenging times ahead for risk assets. The good news is that we can expect downside protection from hedge funds in these market conditions: in a tough context, they continued to provide alpha. Indeed, despite a median equity beta still at high levels (32%), the Lyxor HFI ended the week down only 45ps, while the MSCI World was down close to 4.0% (between Dec 30th and Jan 6th).
Hedge funds managed to offset losses generated on equity markets with much diversified gains: CTA funds started 2015 as they finished 2014, with strong performance on short commodities and long Dollar trades. Global Macro managers are also long on the greenback, and benefited from their large short Euro positioning. On the L/S Equity side, performance came from market-neutral and Asian funds, and sector positioning: most funds managed to take advantage from the recent volatility.
High yield markets were also hurt during the sell-off, especially high-beta names: L/S Credit funds were resilient, while somewhat impacted by their constructive views on emerging markets. However, Event-Driven funds failed to bring uncorrelated returns and were still hurt by their energy sector exposure this week.
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