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Laxman Pai, Opalesque Asia:

In recent weeks, market conditions switched swiftly from panic mode to exuberance mode, says Lyxor in its monthly Hedge Fund Brief.

Risk assets bottomed out at the turn of the year, and since then, global equities were up by 15%. Interestingly, the rebound in equities did not prevent bond markets to post additional gains in early 2019.

"In the meantime, hedge fund strategies experienced a symmetric move. The strategies that suffered in December such as L/S Equity and Relative Value Arbitrage rebounded recently, while those resilient at the end of 2018, such as CTAs, lagged behind so far in Q1 due to their short equity positions," it said.

In terms of positioning, L/S Credit strategies were among the very few to take advantage of deteriorated market conditions to add risk in late December, the report said.

"Concurrently, CTAs have dramatically increased their long fixed income positions over the last three months and we are concerned about the impact a bond trend reversal might have on their performance going forward," Lyxor said.

What does this mean in terms of strategic allocation?

"First, we prefer strategies that were relatively resilient during the downturn and didn't suffer during the rebound. This includes Merger Arbitrage and Fixed Income Arbitrage and to a lesser extent L/S Equity Market Neutral and Global Macro," it pointed out.

"Second, we stay cautious on L/S Equity strategies with an elevated market expos......................

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