The Lyxor HFI receded this week, mainly due to CTAs and Global Macro funds, according to the latest Weekly Brief from Lyxor’s Cross Asset Research team. They were dragged by their long in equities and energy, though their losses were mitigated by other buckets.
By contrast, L/S Neutral funds were resilient, as well as the Event Driven funds which were little impacted by the equity correction.
L/S Equity Neutral funds were in positive territories, they were not caught in the multiple sector rotations that unfolded.
These turned out to be rather sector than factor driven. Long momentum stock for instance did correct but short momentum stocks continued to progress and delivered return.
The main losses in Lyxor Neutral funds concentrated on Energy and Chemicals, in sync with lower crude prices. Tech positions also cost.
They were more than offset by gains in short positions, in particular in Italian and UK banks, and in consumer staples.
Lyxor writes: “The potential for alpha generation seems strong, but has yet to unleash when political risk have eased. The economic recovery, the reforms led in France, a more Europhile German government all increase the odds for reforms in Eurozone. Their nature has yet to be determined with two main opposing lines represented by the Northern and the Southern members. The current political dynamic suggests that more spending and more fiscal integration have better odds than reforms toward greater financial risk-sharing. The key risk lies with the Italian elections. Prospects of an Italexit seem remote but an adverse electoral result could break the dynamic in Eurozone reforms. It could discourage foreign investors and question the recovery sustainability. Save a major Italian surprise, prospects for European stock pickers will improve in our view.”