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US hedge funds said to be positioning for Biden win amid “slim” Trump prospects

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US long/short equity hedge funds are said to be “cautiously” positioning their portfolios on a Joe Biden victory in next week’s US presidential election.

Lyxor Asset Management strategists say that a Democrat win on 3rd November looks increasingly likely. But prospects of a sweeping ‘Blue Wave’ victory – which would strengthen “ambitious” plans on stimulus, taxes, and wages – is less clear-cut, hinging on a Democrat majority in Congress.

In recent weeks hedge funds of all strategy types have increased their exposures amid signs that September’s correction was ending – but now they are cutting back on certain risks “and neutralising their most directional calls” ahead of the election, Lyxor said in a note on Monday morning.

“If past elections provide any guidance, prospects for a Trump re-election look slim,” said Jean-Baptiste Berthon and Philippe Ferreira, senior strategists, and portfolio manager Jean-Francois Tormo, noting that a second term re-election historically requires strong growth.

With polls consistently showing a Biden lead, the strategists observed that in previous elections, polling has usually not materially shifted after October.

Feedback from US hedge fund managers suggest their positioning is not solely focused on the election results, Lyxor’s strategists said, with broader macro trends – including ample liquidity, additional fiscal stimulus and the continued economic recovery – also driving portfolio positioning.

“US L/S equity strategies are cautiously positioning on a Democrat win, with a partial rotation out of some of their tech stocks towards the prime beneficiaries of a recovery and exposures to Asia Pacific,” they added.

Global macro hedge funds meanwhile still see medium-term dollar weakness – with short-term support – and are positioned long US breakeven and gold, favouring more tactical calls on US treasuries, where they are currently short.

“EM-focused strategies remain long credit, especially on quasi-sovereign and are now long bonds – partially hedged with selective EM FX positions.”

Meanwhile, in Europe, long/short equity hedge funds have not materially changed their exposures, strategists added.

“They are also cautiously increasing exposures to value stocks at the expense of tech positions. Their main concern regarding US elections, which may have less direct sector impact, is getting the market timing right.”

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