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Alternative Market Briefing

Merger and fixed income arbitrage strategies fail to provide protection in volatile market

Thursday, March 22, 2018

Komfie Manalo, Opalesque Asia:

The volatile markets in February hurt the equity space significantly, reports Lyxor Asset Management. For the first time in 15 months, the MSCI World ended the month in the red, down 3.5%.

Philippe Ferreira, senior strategist at Lyxor AM said that one area of concern is that fixed income did not provide much protection. The Barclays Global Aggregate Bond Index was also down in February.

He said, "Actually the recent equity market rout appears to have been caused by fears of inflationary pressures, pushing bond yields higher in anticipation of a tighter monetary policy stance in the U.S. The positive correlation between equity and bond returns is an issue for investors looking for protection and diversification."

Alternative UCITs see inflows

Ferreira explained that alternative UCITs have continued to experience sizeable inflows in early 2018. Over the past three months, alternative UCITs funds in Europe saw inflows close to EUR 15bn, citing data from Morningstar.

In terms of performance, the hedge fund industry was down in February, but managed to outperform traditional asset classes. Performance was dragged down by CTAs, which suffered from trend reversals in equities and commodities. Some segments of the even-driven strategy, namely special situation funds, also suffered as a result of their elevated beta to equity markets.

On a positive note, fixed income arbit......................

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