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Fixed income markets have faced some pressures lately, as investors fret about less
accommodative monetary conditions going forward. In addition, higher energy prices have
fuelled bond yields, as both OPEC members and Russia reiterated their willingness to find
an agreement on an oil production freeze. Meanwhile, inflation rates have moved higher in
September, as the energy component started to be less of a drag.
This upward trend in bond yields has led to a sharp adjustment of CTAs’ long exposures to
fixed income. Trend followers have actually turned short duration on US fixed income
according to our most recent available data. Meanwhile their long European fixed income
exposure has been massively shaved off, from 87% of net assets to 24% in a single week
(from October 4th to October 11th). In line with the more defensive positioning on fixed
income, CTAs have increased their exposure to energy, from a short stance a few weeks
ago to a long stance at present. It is important to note, however, that our aggregate
positioning measure includes short term CTAs that adjust their positioning very swiftly.
Back in mid-September, we downgraded CTAs to neutral (from overweight) on the back of
the long fixed income stance of the strategy which appeared to us as too aggressive. We
also expressed a preference for short term models. This recommendation has worked well
so far. The Lyxor Long Term CTA index is down 2% since September 20th while the Lyxor
Short Term CTA index is down 0.6%. Meanwhile, the trend-following environment has
continued to deteriorate according to the SG Trend indicator. As a result, it seems too early
to re-weight the strategy but we stand ready to buy back.
With regards to other hedge fund strategies, there have been little changes to notice.
Performance was flat across the board last week, though market neutral managers showed
signs of revival, especially Asian managers.
Finally, flows into alternative UCITs continued at a sustained pace in September. Inflows into alternative UCITs jumped to EUR 7.5bn in Q3, up from EUR 2.8bn in Q2.
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