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The recent turnaround in the global monetary
stance, led by the Fed and more recently by the
ECB, has further fueled the fixed income and credit
market rally. 10-year bond yields in Germany are
back to levels last seen in 2016, when deflation was
a serious threat to economic activity. Meanwhile,
High Yield credit spreads in Euro and U.S. Dollar
tightened significantly in Q1, to levels close to
400bps from 540bps at the turn of the year. In other words, renewed monetary accommodation is translating
into a significant compression of risk premia across asset classes. As an investment theme, the quest for
yield is back and likely to stay for some time.
In this context, most hedge fund strategies experienced positive returns so far in Q1. According to available
benchmarks such as the HFRI Liquid alternative UCITs index and our peer groups, L/S Credit, L/S Equity
and Global Macro strategies outperformed. In particular, EM-focused Global Macro and Special Situation
strategies benefitted the most from the renewed dovish stance of the Fed.
Concurrently, CTAs underperformed and stand in negative territory year-to-date due to their short equity
positioning at the start of the year. But such losses were partially offset by gains in their fixed income and
currency buckets.
Going forward, we maintain a preference for Event-Driven and Fixed-Income (Arbitrage) strategies
compared to L/S Equity and within the Global Macro space we still have a preference for EM-focused
strategies.
Finally, Our stance on CTAs stays neutral, but we are observing green shoots of recovery. In
March, the strategy is on track to deliver its best monthly performance since August 2018.
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