The Lyxor L/S Equity strategy outperformed this week, mostly from beta, according to the latest Weekly Brief from the firm’s Cross Asset Research team.
L/S Equity returns were homogeneously red in December, and green in January. Yet, a number of managers stood out in December, giving back some gains afterward.
Lyxor writes: “We observe only few alterations in L/S Equity portfolios at the start of 2019. Most managers steadily reduced their net and gross exposures since Summer 2018, both brought near to their historical lows. Their de-risking came to an end in December. Since then, only few managers bought stocks back over the last two weeks. Similarly, sector allocations were not substantially turned since December lows.”
“L/S Equity managers remain in wait and see mode ahead of several key pending catalysts. The Brexit vote in Parliament is to take place on January 15. Odds look grim, but Mrs May would still have other chances to hold new votes, she could also seek an extension of the negotiations. The earning season will also kick off next week with some of the large banks. While reports for Q4 2018 might still look decent, investors will scrutinise companies’ guidance. US and Chinese early trade talks ended on 9 January on a positive tone. Chinese concessions remain far from US initial requests, but plunging financial markets are probably pushing Mr Trump to advance his timing ahead of the 2020 elections. More senior-level talks will probably be held by end of January. Moreover, the high stock re-correlation, typical in sell-off episodes, is only starting to normalise. In the meantime, the market structure remains adverse for stock pickers.”
“European managers appear the least inclined to return to markets given the multiple local political and economic uncertainties. Domestic stocks were reduced in line with a firming Euro. US portfolios’ exposures are higher than in Europe. Safe-haven positions were added at the expense of tech and financials holdings. Interestingly, some Asian managers are cautiously rebuilding exposures. Industrial are preferred over tech stocks, consistent with improving trade talks, China policy easing, but an intensifying tech war. Quantitative strategies’ portfolios are now skewed toward defensive positions, reflecting the reshuffling in Momentum stocks.”
