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Alternative Market Briefing

Hedge funds: L/S Equity strategies follow markets down, says Lyxor

Tuesday, November 06, 2018

Laxman Pai, Opalesque Asia:

Hedge fund returns since October 26th are up +0.5%, primarily led by L/S Equity strategies, as investors' hesitation gradually started to fade amid improving earnings reports, said Lyxor in its weekly brief.

EM focused strategies also rebounded. The other strategies were modestly up over the week. Disappointingly, Special Situations strategies have failed to fully capitalize yet on the early signs of rebounds.

After a rough start, when any stock miss were trashed, prices became increasingly consistent with the pulse in stock's fundamentals. That is a key pattern for managers who need prices to reflect the fundamentals they pick stocks for.

Meanwhile, increased dispersion at a stock and sector levels amid still moderate correlations will also provide a diversity of arbitrage opportunities. They will emerge after the dust settled, when stock trends reshape.

More reasonable earning expectations will also lower the hurdle. Interestingly, US equities also showed a wider sector leadership, with the contribution from cyclicals matching for once that of tech stocks.

"We are past the peak of earning reports in the U.S. The unusually high individual stock volatility after announcements is a pattern that only appeared, in the past, at macro inflections points. The Q3 season tells us that extra-growth from the tax reform is now behind and that Corporate America is back to cruise level. The share of beats, the size of surprises, guidanc......................

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