It was once again a decisive week for the EU with market participants granting an ever rising probability of Grexit. European assets experienced sizeable pressure during the period under review, though there has been a respite towards the end of the week following the conciliatory tone of the Greek government.
Head of Research – Managed Account Platform
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It was once again a decisive week for the EU with market participants granting an ever rising probability of Grexit. European assets experienced sizeable pressure during the period under review, though there has been a respite towards the end of the week following the conciliatory tone of the Greek government.
EM equities were also deeply in the red on the back of the market rout in China. Meanwhile, commodities corrected as a result of the poor global risk appetite, concerns about the implications of China’s financial instability on the real economy and the US crude stock building. Finally, sovereign bonds in the US and in core European countries (Germany, France and the UK) rallied, providing a breather in the midst of mounting uncertainties.
The market backdrop proved supportive for hedge funds as a result of their limited exposure to Greece (see our June 23rd weekly). The Lyxor Hedge Fund Index is up 25 bps this week, but dispersion between strategies has been elevated. CTAs outperformed (+1.7 per cent) and have started Q3 on a strong footing. It is worth highlighting their resilience in front of adverse price action in Europe. Their long fixed income stance, although reduced lately, has allowed systematic managers to take advantage of lower sovereign bond yields in core countries. Short EUR/ USD and short energy in commodities was also supportive. Meanwhile, macro discretionary managers were also up this week (1.1 per cent), supported by their positioning on FX and fixed income.
On the other side of the spectrum, L/S Equity underperformed. Long biased Asian L/S continued to suffer from the sell-off in China. The involvement of authorities brought fruits eventually as Chinese equities rebounded very recently. Yet, it is still unclear whether this is merely a process of short covering or the build-up of renewed confidence. We reiterate our stance to stay shy of both Chinese equities and long biased Asian L/S Equity managers. Finally, some L/S Equity funds still managed to deliver solid returns. In particular, a prominent market neutral European L/S navigated the turmoil completely unscathed (up 1 per cent while the Eurostoxx 50 was down 3.8 per cent), supporting our strong overweight stance on the sub-strategy.
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