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ECB’s purchases started beginning of March, and will crowd investors out of the sovereign market. Signs of distortions already emerged in yield curves. Meanwhile flows toward Eurozone continued to boost risky assets, which were little harmed by the Greek saga. US markets continued to lag with further signs of a cyclical downturn. The substantial dots’ revision at the March 18 FOMC contributed to push back rates hike prospects. Amid signs of accumulating stocks, oil prices weakened on rising odds of a nuclear deal with Iran. The intervention of the Saudi led coalition in Yemen spurred only temporary stress. Funds operating in macro assets – where volatility and trading ideas were the richest – outperformed along the ones benefitting from the continued rally in non-US equities. The sudden jump in M&A deals also favored Merger Arbitrage funds.

This was a strong month for L/S Equity funds, led by the longest biased strategies. The start of the ECB purchases provided a further leg of the rally in reflating regions: Europe, Japan and Asia. The easing measures distilled by the PBoC and the arbitrage opportunities from the Shanghai-Hong Kong Stock Connect continued to lure flows in the region and helped our Asian and Chinese funds produce strong returns.

US Lyxor funds were able to offset an adverse beta contribution through a strong generation of alpha. In particular, they adequately traded the Fed’s change of tone by mid-month through their sector exposures.

Stock dispersion mean reverted from the sustained levels observed for the last several months. However, decreasing correlations and stronger differentiation among quantitative factors allowed market neutral funds to produce +0.3% over the month. In particular, the ‘dot surprise’ from the March 18 FOMC and the weaker payroll report triggered a switch out of growth into value styles.

Event driven funds yet again delivered very decent returns. The not-too-strong US economy, a reasonably dovish Fed and non-US reflation altogether placed risky assets in a sweet spot. Market liquidity concerns remained side lined and low yields contributed to encourage M&A. No less than $300bn worth of merger operations was announced in March (focusing on deal above $100mn in size). It was led by vibrant activity in the Healthcare sector, including the purchase of Salix Pharmaceutical by Valeant, or that of Pharmacyclics by Abbvie. A fresh pipeline of operations and the closing of some mega deals – Allergan vs. Actavis in particular – allowed Merger funds to be up +0.6% in March... Download report here