Risk assets were under pressure during the second half of June as trade war concerns escalated. The MSCI World was down 3 per cent in USD terms during the second half of June, since Trump approved tariffs on Chinese imports.
Lyxor writes: “The equity market correction was accompanied by a sector rotation which sent cyclical sectors such as Materials and Industrials down. Meanwhile, defensive sectors such as Utilities and Telecommunications outperformed since mid-June. Translated into the world of risk factors, this movement is a momentum reversal.
“In the hedge fund space, momentum reversals tend to impact negatively L/S Equity strategies. The strategy underperformed in June because it was on the wrong side of both trades; ie long momentum and short low-beta stocks. Special Situation strategies also got hammered due to their elevated market beta.
“On a positive note, both L/S Equity and Special Situation strategies did better than the overall equity market. Moreover, Merger Arbitrage and Relative Value Arbitrage were left largely unscathed by the market turmoil and delivered returns in positive territory for the full month.
“Our investment views were not impacted by recent market developments. We maintain an overweight stance on Merger Arbitrage, Fixed Income Arbitrage and L/S Equity Variable Bias. Our stance on L/S Equity and Special Situations stays at neutral while we are also defensive on CTAs and Global Macro.”
