Since the FOMC meeting on September 17th, the Fed’s indecisive attitude has been
met with mixed responses from the markets. A lack of guidance has not been
welcomed by risk assets, bonds have rallied and the USD has eased against major
currencies. It is likely that this will fuel Global Macro and CTA managers in particular.
Systematic funds are adequately positioned, being neutral equities and long fixed
income. These funds also cut their long USD positions (especially against the EUR)
during the summer. There are nonetheless discrepancies between the positioning of
short term and long term CTAs. The former have less directionality in FX and
commodity markets and appear to be better suited to capture any benefits from the
new market regime. In fact, long term CTAs are still long USD and short
commodities. The Fed’s stance is likely to put downward pressure on the USD and
some upward pressure on commodities.
Meanwhile, discretionary Macro managers are also long fixed income and are set to
benefit from the ease in bond yields following the downward revision of both the
economic projections and the “Dot Plot” .
Finally, the Fed’s lack of guidance over future interest rate moves could result in
higher risk aversion despite this dovish stance. In the L/S Equity space, we maintain
our strong preference for market neutral and variable bias strategies. Some
managers in that space have delivered double-digit returns year to date and we
expect this trend to continue.
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