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Alternative Market Briefing

Hedge funds slightly up in mid-February as UK discusses 'Brexit’

Tuesday, February 23, 2016

Komfie Manalo, Opalesque Asia:

Hedge funds were slightly up in the week ending 16 February with the Lyxor Hedge Fund Index up 0.1% (-2.9% YTD) as the political leaders in the European Union are fighting over United Kingdom’s future presence in the EU and the financial markets erred on the side of caution.

Lyxor said that based on its proprietary data on hedge funds positioning, it noted that CTA and global macro strategies maintain sizeable short positions on the GBP vs USD.

Philippe Ferreira, a senior strategist at Lyxor AM, commented, "The short positioning of such strategies reflects Bank of England backtracking from its previous hawkish tone. Coupled with the weakness in UK industrial production, disinflationary pressures have contributed to reverse the BoE stance. The hedge fund positioning of CTAs is, by definition, not a bet on Brexit. Most CTAs in our sample are trend followers and followed the downward trend of the cable."

However, he said that the sharp rise in the one-year implied volatility in GBP/USD – which has jumped above 11 vols for the first time since the huge market disruption of the summer of 2011 – signals market nervousness.

Ferreira continued, "Over the course of February, we observe that global macro managers have increased their short stance on the GBP vs USD. While the short stance appears moderate overall, it is important to note that there are large discrepancies......................

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