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Weekly Brief: CTAs see renewed interest from investors

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As of early March, the buoyant performance of hedge funds continues unabated. The Lyxor Hedge Fund index is up 2.4% year to date, and several patterns observed over recent weeks have proved persistent.


Philippe Ferreira

Head of Research – Managed Account Platform

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As of early March, the buoyant performance of hedge funds continues unabated. The Lyxor Hedge Fund index is up 2.4% year to date, and several patterns observed over recent weeks have proved persistent: i) the appetite for risk supports Event Driven and Fixed Income strategies, which outperformed other strategies both this week and in February. ii) Global Macro funds outperform CTAs as a result of the recent rebound in treasury yields and energy prices.

Macro managers are actually short duration and slightly long energy, while CTAs maintain an opposing position on both asset classes. Strong US job data in February proves supportive for Global Macro.

Such positive developments have fuelled inflows into hedge funds early 2015, after a loss of momentum in H2 2014. Within Newcits, multi strategy, market neutral equity and managed futures collected the bulk of the money in January (see chart). The renewed investor appetite for CTAs is corroborated by aggregate flow data (i.e. not restricted to UCITs). This is in sharp contrast with 2014, when the strategy was experiencing outflows despite its stellar performance.

Going forward, we reiterate our positive stance on Event Driven as risk appetite is likely to remain supported by a dovish Fed. We believe the first Fed rate hike is likely to take place in September, as a result of the slight loss of momentum of the US economy and disinflation forces. Event Driven funds may also benefit from continued deal making and deal spread tightening.

Meanwhile, Global Macro managers are set to benefit from the rally in European equities, along with the USD rise and short duration positions in US rates. In the CTA space, we have a preference for short and midterm funds versus long term ones. The latter maintain short positions on energy and long positions on US Treasuries which may cause some losses in the near term. Finally, in the L/S Equity space, we favour market neutral/ systematic funds in both Europe and Asia. Among US L/S equity managers, sector specialists and variable bias funds should be favoured as the valuation of US equities and their loss of momentum signals the asset class  is less attractive for long-only investors.

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