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Weekly Brief: 2015 Retrospective – Strong alpha until October, underwhelming afterwards

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This year remained macro driven, dominated both by monetary policies and the shifts in deflation scares, themselves function of the stance regarding the Chinese transition and oil prices. Four phases paced markets and hedge funds trends:


Philippe Ferreira

Head of Research – Managed Account Platform

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This year remained macro driven, dominated both by monetary policies and the shifts in deflation scares, themselves function of the stance regarding the Chinese transition and oil prices. Four phases paced markets and hedge funds trends:

[Jan-Mar] Bull reversal for global assets and reflation zones: 2015 began with oil prices bottoming following a half-year plunge, and the ECB's QE announcement. It strongly supported the directional strategies – L/S Equity and Event Driven – and the trend followers.

[Apr-Jul] Bond rout and global growth concerns: Profit taking after the ECB started its purchases, the Greek saga and second thoughts about the sustainability of the global recovery opened a see-sawing episode for risky assets. The directional strategies lost some ground and CTAs were sharply hurt by the bond rout. Trend-followers and Global Macro strengthened thereafter.

[Aug-Sep] Deflation debacle: The deflation and growth scares, which built up over the summer, morphed into a vicious cycle by the end of August. Event Driven, Asia and the longest bias L/S Equity funds were the main losers. Apart from the losses endured by a few industry heavy-weighted funds, returns were resilient in other strategies, particularly among variable L/S Equity, CTAs and Global Macro.

[Oct-Dec] A laborious recovery in risky assets: Finding a bottom after the plunge proved laborious, managers remained cautious when markets recovered in October. Whilst L/S Equity participated in the rally, Event Driven funds lagged, hit by the healthcare meltdown. Macro funds’ returns were mixed, but they navigated relatively well from the multiple rotations leading up to the first Fed rate hike.

Hedge funds finished 2015 with only marginally positive returns. Overall, they produced strong alpha relative to traditional assets until Q4. They lost about half of their advance during the rally, heavily dragged by the Special Situations’ underperformance.

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