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Alternative Market Briefing

Lyxor recommends stockpicking strategies, L/S equity hedge funds well equipped for turbulent markets

Monday, June 11, 2018

Matthias Knab, Opalesque:

Market developments in May saw some trend reversals across the fixed income and commodity space. On the one hand, the unfolding of the Italian political crisis coincided with a rebound of U.S. Treasuries during the second half of May. On the other hand, the rising likelihood that OPEC and Russia will raise oil output under the pressure of the U.S. administration led to a reversal in oil prices. Both developments hurt the performance of Macro and CTA strategies, which had built up short positions on Treasuries and long positions on oil over the recent quarters.

On a positive note, bottom up strategies (Event-Driven/ L/S Equity) have fared relatively better. They were up lately despite turbulent market conditions in Europe and to a lower extent in Japan. L/S Equity funds were more resilient thanks to their strong allocations to cyclical sectors such as IT and Materials and Industrials which outperformed. Meanwhile, their reduced exposures to financials, communications, and energy were also rewarding due to their underperformance. On the Event-Driven side, long exposures to stocks such as Tiffany & Co. and Facebook generated substantial returns for special situations funds, while merger arbitrage strategies benefitted from the spread compression on the Qualcomm vs. NXP deal. More recently, the bidding war for Sky between Fox and Comcast was also supportive.

Going forward, Lyxor maintains a preference for stockpicking strategies. L/S Equity appe......................

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