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Hedge funds generate alpha driven by global macro outperformance, says Lyxor

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Hedge funds generated alpha last week, with global macro funds outperforming thanks to higher dollar and oil prices, according to Lyxor’s latest hedge fund weekly brief.

Amid slightly negative global equities, L/S Equity funds succeeded in extracting excess returns, especially in Europe through relative trades.
Two weeks and counting before the very atypical French presidential elections, hedge funds are displaying disparate stances on this event.
Global macro funds at Lyxor seem to be prudently positioned. After the UK referendum and the US election surprises, they are more cautious. While they do not seem to be taking a particular stance on the elections, they are de-risking portfolios and favour relative value trades. Their net total exposure to equities and FX (in USD) are both below 20 per cent.
Event driven funds have marginally increased their European exposures since the end of 2016, however, portfolio additions are company-specific. They include merger, post-merger and recapitalisation situations.
Non-European L/S equity funds steadily increased their allocation to Europe over the last six months with little influence from trends in polls. Such funds seem to play the European recovery. Accounting for a third of their exposure, their European stakes do not seem to be abnormally hedged.
European L/S equity managers also seem to play the recovery but with protections layers. They raised their net exposure by a third since the end of 2016, favouring cyclical sectors such as industrials, tech and materials, as well as small caps. Since the end of January, when the election stress stepped up, they reduced financials and EU-domestic stocks. Additionally, they reinforced the defensive sectors and moved toward non-EU/EMU European markets. They also maintained their short on indices futures implemented back in November 2016.
CTAs seem to be more aggressively exposed to Europe. Their long equities account for the bulk of their current directional exposure, a third of which in Europe. It is partially hedged with long Euro-bond, short EUR, short US duration (all of relatively small size).

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