Global Macro and CTAs outperformed the hedge fund space and delivered positive returns last week amidst difficult market conditions. We reaffirm our overweight stance on these two strategies.
Head of Research – Managed Account Platform
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Global Macro and CTAs outperformed the hedge fund space and delivered positive returns last week amidst difficult market conditions. We reaffirm our overweight stance on these two strategies.
Hedge funds delivered flat returns as markets experienced trend reversals. The October rally was short-lived and conditions became adverse following the strong US payroll data which increased the likelihood that December will see a Fed rate liftoff.
During the period under review, both equities and sovereign bonds experienced a drop in prices. This negatively impacted directional strategies, such as L/S Equity long bias and Event-Driven. We now advise on being defensively positioned on such strategies.
Meanwhile, the buoyancy of the USD against G10 and EM currencies, a logical outcome to the monetary policy divide across the Atlantic, supports the performance of Global Macro and CTA funds. They have maintained long USD positions against major currencies and are thus actively trading the Fed determination to move rates higher for the first time in almost a decade. Associated with the appreciation of the US Dollar, the sharp fall in commodity prices has been supportive for both strategies, although Global Macro funds are less directional on the asset class than CTAs. It is also worth mentioning that both strategies were supported by the impressive performance of Japanese equities, which managed to deliver positive returns at a time when risk appetite deteriorated globally.
Finally, the flat returns delivered by L/S Equity strategies mask the heterogeneity between directional and non directional strategies. The former were down as risk assets fell, but variable bias managers were up, with no regional discrimination. We maintain an overweight stance on market neutral and variable bias L/S Equity funds.
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