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Weekly Brief: CTAs regain colours as the Fed turns “patient”

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The Fed confirmed its dovish stance at the latest FOMC meeting, significantly decreasing monetary policy uncertainty over the course of the summer. Markets responded positively with US equities and Treasuries posting gains. In the Eurozone, uncertainties associated with Greece materially stepped-up. 


Philippe Ferreira

Head of Research – Managed Account Platform

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The Fed confirmed its dovish stance at the latest FOMC meeting, significantly decreasing monetary policy uncertainty over the course of the summer. Markets responded positively with US equities and Treasuries posting gains. In the Eurozone, uncertainties associated with Greece materially stepped-up. 

The failure to reach an agreement with creditors opened the door to rumours of capital controls. Regulators and market participants are now preparing contingency plans to ring-fence the European financial system in case of a Grexit. This triggered some de-risking on European markets but still no stampede. In the hedge fund space, there has been somewhat higher dispersion in returns, but the overall performance is positive. The Lyxor Hedge Fund Index is closing the week up 0.3 per cent.

Following two negative weeks, Global Macro managers and CTAs managed to recoup part of the losses, closing the week up 0.3 per cent and 0.6 per cent respectively. Both strategies generated gains on fixed income. Uncertainties generated by the turmoil in Greece actually translated into a sell-off in peripheral bonds and a rally in safe haven bonds, namely German bunds and US treasuries. CTAs managed to post additional returns on short agricultural positions.

L/S Equity funds did relatively well, finishing the week up +0.3 per cent. As a reversal of the trend that has been evident since the beginning of the year, Asian-focused managers underperformed. In Europe, managers were able to generate strong alpha despite the volatile environment. Meanwhile, US L/S Equity managers were fuelled by supportive market conditions. The S&P 500 was up 0.8 per cent during the period under review. Amidst this turbulent environment, it is noteworthy that the gross exposure of L/S Equity hit its lowest level since October 2014,

Finally on the Credit side, markets which had proved to be quite resilient until now were hurt last week. The failure to reach an agreement dragged down Greek bonds by approximately -7 per cent, impacting negatively other peripherals and High Yield markets. In an unfavourable context, losses of L/S Credit managers remained nonetheless limited. At the platform level, only a few funds are exposed to Greece. In most cases, exposures are very limited. In some cases managers have implemented hedging strategies or reduced Greek risk in the portfolios.

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