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Alternative Market Briefing

Hedge funds managing well as the tech sector navigating troubled waters

Tuesday, May 28, 2019

Laxman Pai, Opalesque Asia:

As the U.S. aims to deglobalize the tech industry and protect its national interests, the tech sector is navigating troubled waters. The L/S Equity managers at Lyxor have managed the sudden tech sector repricing so far.

Communication and tech positions remain dominant in portfolios, but several warnings earlier this year led managers to reduce net exposures, Lyxor said in its weekly brief.

Since the unexpected trade and tech war escalation in early May, they continued to trim their tech positions (especially the semi and hardware stocks) while adding to the defensive sectors.

"At a fund level, EM and Chinese focused strategies suffered the most, but the drag on the other UCITS L/S equity strategies that we monitor was smoother," Lyxor pointed out. Their higher correlation and limited returns dispersion suggest homogeneously cautious exposures to tech.

Since the trade and tech war unexpectedly escalated early May, the long-biased L/S Equity and Special Situations strategies underperformed, though losses remained manageable due to their cautious exposures.

The other strategies remained remarkably immune from the rising risk aversion.

The return of uncertainty weakens the alpha environment

Uncertainty has returned. Optimism had built up on expectations for a pending U.S.-China trade agreement, vanishing odds of a no-deal Brexit, and more clarity on auto tariffs by mid-May.

Instead, these uncertainti......................

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