Stockpicking strategies remain in the driving seat

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Market developments in May saw some trend reversals across the fixed income and commodity space. On
the one hand, the unfolding of the Italian political crisis coincided with a rebound of U.S. Treasuries during
the second half of May. On the other hand, the rising likelihood that OPEC and Russia will raise oil output
under the pressure of the U.S. administration led to a reversal in oil prices.
Both developments hurt the
performance of Macro and CTA strategies, which had built up short positions on Treasuries and long positions
on oil over the recent quarters.

On a positive note, bottom up strategies (Event-Driven/ L/S Equity) have fared relatively better. They were
up lately despite turbulent market conditions in Europe and to a lower extent in Japan. L/S Equity funds were
more resilient thanks to their strong allocations to cyclical sectors such as IT and Materials and Industrials
which outperformed. Meanwhile, their reduced exposures to financials, communications, and energy were
also rewarding due to their underperformance.
On the Event-Driven side, long exposures to stocks such as
Tiffany & Co. and Facebook generated substantial returns for special situations funds, while merger arbitrage
strategies benefitted from the spread compression on the Qualcomm vs. NXP deal. More recently, the bidding
war for Sky between Fox and Comcast was also supportive.

Going forward, we maintain a preference for stockpicking strategies. L/S Equity appears well equipped to
navigate turbulent markets and we have a strong preference for strategies with a variable bias that can adjust
their net exposure to fast changing market conditions. Meanwhile, we maintain strong convictions on Merger
Arbitrage, in the context of the U.S. fiscal reform and skyrocketing M&A activity in 2018. Overall, monetary
tightening and the rise in bond yields have pushed higher the dispersion across stock returns both in the euro
area and the U.S. which should prove supportive for hedge fund strategies focused on stock selection.