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Laxman Pai, Opalesque Asia: CTAs, Special Situations, and L/S Equity Directional strategies suffered the most this week from their long exposures to equities, said Lyxor in its weekly brief.
Merger Arbitrage strategies benefited from their lower correlation with equity markets and outperformed.
While CTAs lagged this week, they remain comfortably up for the month, with protections concentrated in fixed income, FX, and precious metals.
The bulk of the losses came from their long equities. These were partially mitigated by their short energy and their 2x-leveraged long-bond exposures (mainly in EU). Long gold protection didn't work. As of Feb 27, portfolios were not materially altered yet.
Special Situations' concentrated portfolio but low exposures (-2.7%). Their main exposures on cons disc., tech and healthcare were hit across the board.
Credit books and their relatively conservative market exposures contributed to limit their drawdown. Unlike previous sell-off episodes, few managers are trying to buy cheaper opportunities on dip yet.
L/S Equity Variable in line with their beta (-2.7%). Managers had selectively reduced their cons. disc., base material, energy, and airline exposures. However, they had kept their cruise 40% market beta. With a plunge nearly across the board, stock-picking alpha was minimal. The elevated dispersion across managers' returns mainly came from market timing.
Global Macro return was dispersed (-1.5%). EM focused managers were down only -0.8%. Systematic approaches underperformed. Generally positioned for a constructive environment, long equity and short bonds exposures were costly with limit cushion from long gold.
L/S Equity Neutral better-handled stock rotations (-0.6%). The classic risk-off factor rotations out of cyclical were easier to manage this time. Main losses concentrated on cyclical.
L/S Credit managers were also resilient (-0.5%). They successfully navigated a +100bps and +75 bps rise in U.S. and EU HY, respectively. Their low market net exposure provided protection. The rotation across credit segments was more challenging to navigate for FI diversified styles.
Merger arbitrageurs outperformed (-0.5%). The widening in deal spreads was marginal (about +20bps based on 80 tradable deals above $100mn), apart from large deals in the cons. disc. and energy sectors.
Current managers' focus on safer short-closing transactions also contributed to the remarkable resilience of the strategy.
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