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Alternative Market Briefing

Lyxor has reduced leverage and exposure to high beta and momentum strategies

Tuesday, February 12, 2019

Laxman Pai, Opalesque Asia:

Lyxor said in its Weekly Brief that the firm is positioned around three axes to begin 2019: reduce exposure to high beta strategies, reduce sensitivity to Momentum, and leverage on the U.S. M&A cycle.

Overall, alternative strategies appear attractive but dispersion across strategies might be high, said Lyxor's Cross Asset Research team.

The dominance of speculative drivers early this year would keep on unsettling long fundamental strategies, either forced to stay on the sidelines or to take reckless risks.

"We downgraded L/S Equity strategies that show high market exposure and sensitivity to Momentum. We also downgraded Special Situation strategies to Neutral, skeptical that fundamental rationales will be rewarded in the short-term," it said.

"We would stay Neutral on L/S Equity neutral strategies, attractive for diversification, but still at risk from their momentum bias, while factors arbitrage could be unsettled by transversal political drivers. We are also Neutral CTAs which have now turned defensive, but which are vulnerable to streams of market reversals. We are neutral Global Macro. Most macro managers are defensive but would remain constrained by speculative drivers," Lyxor added.

"We maintain our overweight on Merger Arbitrage, which should perform, reasonably decorrelated from market trends. We also remain OW on Fixed Income Arbitrage, which has been a good diversifier when equity volatility rises," it said.

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