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Weekly Brief: Hedge Funds Dodge Swiss Move to Scrap Currency Cap

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The main event of the week has been the decision of the Swiss National Bank to scrap the cap on the CHF on 15 January. The SNB unexpectedly decided to stop accumulating assets in EUR, a currency that is likely to be debased at the next ECB meeting on January 22. Fundamentally, the SNB could not continue to intervene forever. Since the cap was implemented in September 2011, the balance sheet of the SNB rose by more than 40%, i.e. a massive injection of liquidity (the Fed’s QE3 increased the balance sheet of the Fed by 60% between September 2012 and October 2014).


Philippe Ferreira

Head of Research – Managed Account Platform

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The main event of the week has been the decision of the Swiss National Bank to scrap the cap on the CHF on 15 January. The SNB unexpectedly decided to stop accumulating assets in EUR, a currency that is likely to be debased at the next ECB meeting on January 22. Fundamentally, the SNB could not continue to intervene forever. Since the cap was implemented in September 2011, the balance sheet of the SNB rose by more than 40%, i.e. a massive injection of liquidity (the Fed’s QE3 increased the balance sheet of the Fed by 60% between September 2012 and October 2014).  

Implications for hedge funds are moderate. Although the data we report here excludes the market move related to the SNB decision, we can infer that CTAs are likely to post gains on the CHF rise, Global Macro may post moderate losses, and L/S Equity would be barely impacted.

The performance of HF during the period under review (6 Jan to 13 Jan) was buoyed by the sharp rebound in risk assets, with European equities leading the way. This follows the risk-off move observed earlier in January, and supported GM managers having long exposures on European equities. Meanwhile, rates edged lower, oil continued to slide and the US dollar still posted strong gains. Against this backdrop, HF performed reasonably well. CTA continued to lead the way up 2.3% over the period, a confirmation of their 2015 good start. Profits were generated across all buckets. Short Energy and short EUR-USD once again provided gains, reinforced last week by the positive contribution of long Equity and long Fixed Income exposure.

After showing resilience over the large risk-off move witnessed last week, macro managers performed strongly last week, on the back of the rebound in equity markets. Short EUR position also contributed to performance while Energy and Fixed Income position detracted. L/S Equity also posted gains with Variable Bias outperforming peers and up 1.2% over the week. Market Neutral and Variable Bias funds confirmed their superior positioning versus Long Bias peers in this volatile environment.

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