To date, most hedge fund strategies are up in November as previous trends in FX and commodities continue unabated. The renewed fall in commodity prices has triggered another leg down in energy stocks in November. As a result, the defensive positioning of hedge funds on the commodity complex has been rewarding.
Head of Research – Managed Account Platform
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TAs outperformed last week as a result of their aggressive short positioning on commodities. Their long fixed income positions also benefitted from the deflationary pressures arising from the fall in commodity prices. In that respect, it is interesting to note that CTAs are rapidly adjusting their long fixed income positions downwards (see chart). In our opinion, the reduction of directionality on fixed income is a welcome move ahead of the likely December Fed rate hike. We remain overweight CTAs.
Meanwhile, L/S Equity managers were slightly up both last week and during the month, despite the global equity markets standing in the red during the same periods. Their short to neutral positions on energy stocks provided protection recently. Once again, the outperformer in our sample of L/S Equity funds is a EM specialist who is now up 25 per cent on a year to date basis. Its outstanding returns are attributable to the performance of themes such as long EM consumer/ short EM energy and mining.
On the negative side, Event-Driven funds continue to underperform, down 0.6 per cent last week and 4.7 per cent in 2015 so far. Their recent difficulties are the result of adverse market conditions and their exposure to the healthcare sector. Mylan’s USD 27 billion unsolicited attempt to buy Perrigo failed to convince enough investors to back the deal. The stock price of the target, a top 3 long exposure of Event-Driven funds, fell during the period under review. In parallel, the stock price of the acquirer rose after the announcement of the deal break, as usual. Interestingly, the fact that some managers were also long the acquirer in this deal contributed to limit losses and even generate gains for a few funds. Finally, the slightly long exposure of Event-Driven funds to the energy sector was also a source of losses.
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