CTA and Macro Strategies Diverge
Recent data releases and lower political risks provided further stimulus to European risk assets. Since the beginning of Q2, European equities outperformed the U.S. market by a hefty 3.5%. Meanwhile, EUR appreciated vs. USD, negatively impacting the performance of Global Macro managers.
The performance of hedge funds, as measured by the Lyxor Hedge Fund index, was flat last week. It was essentially hampered by the negative performance of Global Macro managers, who had maintained short positions on the EUR vs. USD and long positions on commodities (energy and metals). As a result of adverse market movements compared to their positioning, the Lyxor Global Macro index was down -0.5% last week. The remaining hedge fund strategies were in positive territory, led by CTAs ( 0.7%).
After a difficult month of April for CTA performance, the first week of May was supportive. Long positions on both equity and bond markets contributed substantially. In the near term, their long positions on commodities and short positions on European currencies may continue to detract from performance. We maintain a defensive positioning on the strategy for the time being.
Meanwhile, Event-Driven and L/S Equity strategies continued their upward trend. In particular, merger arbitrage has staged a healthy rebound so far in Q2, up 2.9% since the end of March. The strategy benefitted from long positions on companies such as Actelion, NXP semiconductors, Syngenta and Alere, which experienced positive developments lately. On the L/S Equity side, managers with a long market bias outperformed, without much surprise considering the rebound in global equity markets. Market neutral L/S Equity managers are flat so far in Q2 and have thus protected the gains achieved in Q1 this year.
Going forward, we continue to prefer bottom-up strategies (L/S Equity, Event Driven) compared to top down strategies (CTAs, Global Macro). The latter is still positioned for higher commodity prices (energy, metals) and a stronger USD, which appears less straightforward as the market reevaluates the optimism that followed the U.S. election.
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