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Alternative Market Briefing

Re-weighthing EM-focused global macro and L/S credit strategies: Lyxor

Tuesday, March 26, 2019

Laxman Pai, Opalesque Asia:

In a context where monetary conditions are more accommodative and sovereign bond yields are back to low levels, it seems appropriate to re-weight carry strategies such as EM-focused Global Macro and L/S Credit.

"The views on these alternative strategies are aligned with our recommendations on traditional asset classes," Lyxor said in its Weekly Brief.

"We suggest an overweight stance on High Yield (in USD and in Euro) and EM sovereign credit. Specialized alternative managers in those asset classes tend to have a long bias which implies that spread tightening, as we expect, would be as a tailwind," it added.

"Overall, we maintain a preference for Event-Driven vs. L/S Equity; and a preference for Fixed Income Arbitrage (including L/S Credit) vs. Global Macro and CTA, with some readjustments at the level of sub-strategies. We keep an OW stance on Merger Arbitrage, which offers a low correlation to equities and a low volatility in returns," the report pointed out.

Global M&A volumes are down (-30% YTD - as of March 25th - vs. Q1-18) but remain stable in the U.S. where the share of mega-deals is significant. Deal spreads have decreased in Q1 but they tend to be volatile and are of little help to formulate midterm views. The strategy is also an attractive hedge if things go wrong (Brexit, global growth slowdown).

"We also remain OW on Fixed Income Arbitrage. However, within the strategy we downgrade sovereign Fixed Income, th......................

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