This post is also available in: 
Français
Gains across equity markets reversed the weak start of the
year, driven by better investor sentiment and lower risk
premiums. The consensus eventually ignored most of the US
data noise, likely impacted by extreme weather. The end of the
US earnings season finishing on a strong note and firm
economic data in Europe also provided support. EM markets
remain a source of concerns, where many currencies
continued to sell off. Fixed income yields have not rebounded
with other risk assets, taking a more conservative take on
global growth.
Strong performances were recorded in L/S Equity. The
Variable bias funds were up +1.8%, comparing nicely with their
long bias peers up +2.7%, with about half of their net
exposure. Positions on cyclicals, non-large cap, and European
stocks posted the strongest relative performance.
The variety
of themes which can be expressed in European equity
(including EM exposure, EU core vs. periphery, recovery
themes, domestic vs. external demand dynamic) has
contributed to alpha generation. Positions in Europe are
gradually reweighted, in particular in consumer and industrial
stocks.
Long bias funds have marginally reduced their net
exposure: but their long book remained unchanged. Funds
focusing on Asia and Emerging markets as well as market
neutral funds have unsurprisingly been lagging. On average
Long bias funds enter March with a 75% net exposure, and a
140% gross exposure; Variable bias, 35% and 200%
respectively.
Special situation funds ranked number one in February up
as much as +3.5%. All Event driven funds got boosted by the
recovery in risk sentiment. Special situation positions performed
well.
Merger arbitrage funds also enjoyed a fresh load of new
deals. Interestingly hostile and stock deals accounted for a
more significant share of the volumes announced lately.
These
aggressive features bode well for the gradual momentum
supporting M&A trends. Mega deals including Time Warner,
Verizon or Forest Laboratories announced this month were
successfully played by most funds. On average, Event Driven
funds end the month with a 60% net exposure (shaved off
across the board from 70% early this year) and a stable gross
exposure at 120%. Their 4 main sector concentration are on
communication, financials and consumer both cyclical and
non-cyclicals.
Following a tough month of January, the Long Term CTAs
rebounded strongly, up +3.4% in February. They benefitted
from their equity and to a lesser extent, rates positions. These
had been maintained – though reduced – despite the
weakness early this year. Short USD positions against Euro
and GBP positively contributed. Main losses were recorded in
long energy and short precious metals. Medium term models
underperformed, hit in January, and again in February once
positions were rebalanced.
Short Term CTAs have been faster
to adjust their exposure to the February reversal. They profited
from volatility in base metals and agriculturals. Besides, the
downward repricing of the US economy in ST and LT bonds
was captured by these models.
On average CTAs are ending
the month with an elevated margin to equity (around 15%),
resulting from current low levels of volatility and correlation.
About 30% of this risk is allocated to equity, and 10% to
bonds.
The rebound in risky assets also profited to global macro –
up +0.7% – which had kept a reasonably constructive take on
growth. How this view was implemented in detail explains the
dispersion of returns within the group. On average, they made
profits on equity (in Europe in particular, which they also
reweighted, reflecting the turn in relative economic surprises),
on long precious metals. Losses were generally incurred in their
Japanese stakes, and commodity relative value trades.
Easing spreads supported Fixed Income funds, though with
dispersion. CB Arbitrage funds were up +1.5%. The bulk of
their returns was generated through gamma trading and
positive delta to equity. They also enjoyed strong primary
markets with attractive pricings. Their market value exposure at
175% remained unchanged. L/S Credit funds were up +1.7%.
They benefitted from spread compression, with HY
outperforming IG, consistent with most funds’ positioning. The
stabilization in EM spreads also contributed to returns (in
particular positions on Argentina, Venezuela and Greece). They
continue to be nimble in their positioning. They end the month
with a dominant net exposure on financials, and hold significant
stakes in long EU periphery vs. short Europe.
Strategies sensitive to equity and playing corporate action
themes on the one hand, and the ones focusing on the relative
change in momentum across markets outperformed in
February. Large market swings since the beginning year, but
“the volatility YTD is a perfect example of why alternative
strategies offer great value versus long-only strategies”, says
Rob Koyfman, senior cross asset strategist at Lyxor AM.
Add Comment