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Alternative Market Briefing

Long/short credit hedge fund strategies resilient in 2019

Tuesday, May 21, 2019

Laxman Pai, Opalesque Asia:

In a context where rising trade uncertainties have interrupted the rally in risk assets, L/S Credit strategies have been resilient in May so far, said Lyxor in its weekly brief.

Such resiliency took place despite a widening in High Yield (HY) credit spreads, by approximately +35bps both in Euro and in USD. The Lyxor L/S Credit Peer Group was down -0.2% month-to-date, while the Global Peer group was down -0.7%.

Based on a sample of 30 L/S Credit UCITS strategies, the best performing one month-to-date was up +0.6% and the worst performing one was down -2.0%. Since the beginning of 2019, L/S Credit strategies outperformed, up +3.0%.

"Our views on the strategy have been constructive over recent months, assuming that i) sovereign bond yields are low and will likely stay low for longer as monetary policy will not normalize anytime soon; ii) carry strategies such as HY Credit should benefit from the portfolio rebalancing effect, whereby low bond yields on safe long-term securities compress risk premia for lower graded securities; and iii) L/S Credit strategies should benefit from the compression in risk premia while controlling for volatility," said Lyxor.

L/S Credit strategies halved the volatility

"We estimate that L/S Credit strategies halved the volatility in returns of HY Credit over the past ten years. We also estimate that the information ratio of L/S Credit has been close to 2, significantly above the ratio for......................

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