Hedge funds were up last week, on the back of the positive performance of CTAs and L/S Equity Market Neutral strategies, while CTAs staged an impressive rally with most buckets contributing to performance, according to the latest Weekly Brief from Lyxor’s Cross Asset Research team.
Lyxor writes: “Event-Driven and L/S Equity strategies underperformed. In the Event-Driven space, both Special Situations and Merger Arbitrage were under pressure according to benchmark indices. Dispersion was nonetheless somewhat elevated across merger arbitrage strategies as some funds suffered from the Akorn vs Frenesius deal break while others did not.”
“Relative value arbitrage remains the best performing strategy this year. The rise in bond yields across the yield curve in most developed countries was supportive, though last week the strategy was flat.”
“The release of the non-manufacturing ISM at 61.6 for September last week in the US triggered a sharp rise in Treasury yields. The data print was close to the record high, which was reached over 20 years ago. The US economy appears to be firing on all cylinders on the back of the fiscal expansion package approved in late 2017. This appears to be at odds with the growth deceleration observed in Europe during the recent quarters.”
“Although the rise in Treasury yields has pushed higher bonds yields in the Eurozone and in Japan, the move outside the US has been much more limited. CTAs have been positioned for a widening of the Treasury/Bund spread, with short positions on Treasuries and long positions on Bunds in net terms.”
“L/S equity strategies faced renewed downward pressures last week, extending the Q3 losing streak. In aggregate, the strategy has increased its market beta during the summer and thus suffered on the back of the recent market reversal. Meanwhile, sector rotations in favour of value stocks were also harmful, while long positions on technology stocks were a source of losses.”
“Yet, the strategy is highly heterogeneous and some strategies on our platform recently managed to reduce significantly their net exposure recently. On a positive note, L/S Equity Market Neutral strategies have done better. The strategy appears to have reduced its long-standing momentum bias, which helped mitigate the impact of the sector rotation on performance.”
