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AII Barometer: Trading Fed v ECB benefits macro strategies

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The Lyxor Hedge Fund Index was up 0.7 per cent in November. Four out of 11 Lyxor Indices ended the month in positive territory. The Lyxor CTA Long Term Index (+3.6 per cent), the Lyxor Global Macro Index (+1.8 per cent), and the Lyxor LS Equity Variable Bias Index (+1.2 per cent) were the best performers.

The Fed and the ECB took centre stage – again – in November. The October 28 FOMC statement downplayed abroad risks and specified that members would consider "at the next meeting" whether action would be appropriate. It spurred an orderly but clear market repositioning. Later on, several ECB comments built up expectations for additional monetary easing at their December meeting. Tactical positioning around these two catalysts dominated markets. It mainly benefitted to CTAs, Global Macro and Variable L/S Equity funds. Most other strategies recorded mixed returns.

L/S Equity kept their cautious exposure, with limited portfolio changes. The strategy made slow and steady gains over the month. Equities were not the markets’ epicentre. Trading volumes remained subdued ahead of the Fed and ECB meeting. Managers’ positioning remained cautious – even among the long US bias funds – and portfolios were little changed. Amid a lack of directionality, the alpha was mainly produced on short books. Asian and UK focused managers were the most successful at this. European managers underperformed, not helped by a disappointing earnings season. Market neutral funds continued to suffer from momentum and sector rotations. After weeks of poor alpha conditions – with high correlation and poor dispersion – the backdrop is now recovering in most G3 markets.

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