After a buoyant beginning of the year, many active investors now seem to be waiting and holding on to their positions, according to the latest Weekly brief from Lyxor’s Cross Asset Research team. Very few positions have been added since the October sell-off.
Lyxor writes: “Holdings added in 2018 are very diversified over sectors. The tilt that managers used to have toward infotech and consumer discretionary has decreased.”
“The majority of their holdings are in Mid or smaller Caps (55 per cent) and managers have been seeking companies with better credit quality and sounder business pulse than in the past. Revenue and EBITDA growth of the stocks added in 2018 are modestly positive in aggregate.”
“Stock returns have been under pressure since the summer, in line with broader markets. However, their aggregate USD12 million forward valuation remain slightly cheaper than headline small or large indices. Overall, we find that Special Situation strategies slightly reduced their overall exposure over the course of the year to return to their long-term cruise level.”
“While their beta exposure over the last three years accounted for about two-thirds of their returns, we estimate that a third came from alpha. Compared to a mainstream activist strategy, Special Situation strategies continued to generate alpha up until recently, but they lost around 2 per cent of alpha in October.”
“In conclusion, it seems that Special Situations are not overly concerned about recent market conditions, and remain consistent with their long-term strategy. They increased their portfolio diversification and shaved off their market exposure. They tend to pick position of better quality in the mid-cap space.”