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Hedge funds generated alpha last week. Global Macro funds outperformed thanks to
higher dollar and oil prices. Amid slightly negative global equities, L/S Equity funds
succeeded in extracting excess returns, especially in Europe through relative trades.
Two weeks and counting before the very atypical French presidential elections, hedge
funds are displaying disparate stances on this event.
Global Macro funds at Lyxor seem to be prudently positioned.
After the UK referendum and
the U.S. election surprises, they are more cautious. While they do not seem to be taking a
particular stance on the elections, they are de-risking portfolios and favor relative value
trades. Their net total exposure to equities and FX (in USD) are both below 20%.
Event Driven funds have marginally increased their European exposures since the end of
2016, however, portfolio additions are company-specific. They include merger, post-merger
and recapitalization situations.
Non-European L/S Equity funds steadily increased their allocation to Europe over the last
six months with little influence from trends in polls. Such funds seem to play the European
recovery. Accounting for a third of their exposure, their European stakes do not seem to be
abnormally hedged.
European L/S Equity managers also seem to play the recovery but with protections layers.
They raised their net exposure by a third since the end of 2016, favoring cyclical sectors
such as industrials, tech and materials, as well as small caps. That is not to say that they
shrug this risk-off. Since the end of January, when the election stress stepped up, they
reduced financials and EU-domestic stocks. Additionally, they reinforced the defensive
sectors and moved toward non-EU/EMU European markets. They also maintained their
short on indices futures implemented back in November 2016.
Finally, CTAs seem to be more aggressively exposed to Europe.
Their long equities
account for the bulk of their current directional exposure, a third of which in Europe. It is
partially hedged with long Euro-bond, short EUR, short U.S. duration (all of relatively small
size).
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