Global Macro Holds Tight On European Currencies’ Shorts
Global risk appetite remained steady during the recent months, despite continued investor concerns over asset price valuation and political risks. The MSCI World is up 3.5% in Q2 as of early June*. Yet, sovereign bond yields remain very low and yield curves flattened, raising questions over investors’ confidence on the pace of economic activity going forward.
Hedge fund performance has been disparate across strategies. Event Driven funds extended their winning streak in May, fueled by Merger Arbitrage. In parallel, Macro strategies underperformed, on the back of long positions on the USD and on hard commodities.
In terms of positioning, it is striking to note the extent to which CTAs and Global Macro now differ with regards to European currencies. In the context of improving economic momentum in the Eurozone and snap general elections in the UK, CTAs have rushed to the exit, trimming down net short positions on the EUR and the GBP vs. USD. In parallel, Global Macro funds hold tight on their European currencies’ shorts.
Going forward we maintain a preference for bottom up strategies versus top down ones. That implies a preference for Event Driven and L/S equity compared to Global Macro and CTAs. Trend followers are, in our view, too reliant on trends in equity markets. Within Global Macro, we prefer multi asset funds compared to specialists on a single asset class. Finally, within the fixed income and credit space we have a preference for market neutral players in light of the very tight credit spreads which may hurt directional players at some point.