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Alternative Market Briefing

L/S Credit and Special Situations strategies outperform in June

Tuesday, June 23, 2020

Laxman Pai, Opalesque Asia:

Lyxor Peer Groups suggest hedge fund performance was flat mid-June. Equity-related strategies underperformed and CTA/ Market Neutral L/S outperformed due to the brief risk-off episode on June 11 when the S&P 500 fell -5.9% in a day.

"On a month-to-date basis, L/S Credit strategies were up by +2.2%. This is a strategy that we upgraded to Overweight on the back of its attractive risk/ return profile at this stage of the business cycle," Lyxor said.

Asset purchase programs by central banks will likely compress risk premia across asset classes. The search for yield turns High Yield attractive as an asset class but credit risks remain significant in some sectors such as transportation. L/S Credit strategies have more alpha potential in conditions where dispersion between individual sectors and issuers is elevated.

"In a previous Lyxor Cross Asset Research piece, we had analyzed the underwhelming performance of neutral strategies until early Q2 2020," it added.

Extreme stock volatility, heavy systematic trading volumes, the dominance of speculative drivers (the pandemic, multiple stimulus, the oil price war), and their delayed showing in macro and corporate statistics all contributed to impair fundamental stock-picking approaches.

A fast stock re-correlation, insufficient contribution from shorts, and major factor/sector rotations were additional challenges. "We had also expected that, with normalizing trading conditions, the enviro......................

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