Hedge funds delivered positive performances last week, with CTAs outperforming, according to the latest Weekly Brief from Lyxor’s Cross Asset Research team.
A stronger USD v major currencies, rising equities, in Europe especially, and the fall of German Bund yields boosted CTAs’ returns last week. The slide of energy prices shaved off part of the gains. The other strategies were overall flat.
On a year-to-date basis, Fixed Income Arbitrage and L/S Equity outperformed. Event Driven rebounded in Q2 on the back of tighter deal spreads that fostered Merger Arb’s performances. CTAs faced challenges in May due to trend reversals. Overall, trend-following conditions remain weak.
Trend reversals in May led CTAs to reshuffle somewhat their positions in portfolios, especially in the FX space.
They turned long USD versus major currencies, at the exception of the JPY. They virtually rebuilt their net long exposures to energy from their February cut. They maintained their long equities (moderate) in most DM regions, short US bonds and long EU bonds. The reversal in EMU equity indices and plunging oil prices were painful in May, with quite homogeneous returns across managers.
Lyxor writes: “Trend following conditions remain weak overall. In the commodity space, trends have been supportive, specifically energy, but started to reverse recently. Trends in equities and fixed income do not appear to be stretched at present. As a result, we reiterate our neutral stance for CTAs.
“As a result, we maintain a neutral stance on this strategy.”
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