{"id":51801,"date":"2016-05-10T01:36:38","date_gmt":"2016-05-09T23:36:38","guid":{"rendered":"http:\/\/beta.next-finance.net\/news\/nearing-the-end-of-a-junk-rally\/"},"modified":"2019-12-31T00:42:29","modified_gmt":"2019-12-30T23:42:29","slug":"nearing-the-end-of-a-junk-rally","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/news\/nearing-the-end-of-a-junk-rally\/","title":{"rendered":"Nearing the end of a \u2018junk rally\u2019?"},"content":{"rendered":"

Hedge funds\u2019 returns weakened in sympathy with last week’s retreat in risky assets. Losses
\nwere mild in general, with few notable underperformers. By contrast, CTAs outperformed,
\nrecouping their earlier losses as yields and oil weakened. Funds keeping a low beta also
\nperformed well, the neutral and variable equity funds especially.<\/p>\n


\nSentiment deteriorated last week. A number of mixed economic releases failed to
\ndemonstrate any pick up in fundamentals. Macro data remained consistent with a sluggish
\nglobal growth environment neither gaining nor losing momentum.<\/quote><\/p>\n

The environment since the rally started by mid-February was particularly uncomfortable for
\nmost asset managers. A binary macro backdrop and rich valuations maintained high
\nuncertainties, preventing most investors from taking aggressive bets.<\/p>\n

The rally largely reflected renewed optimism on China and the global recovery, whilst the
\nFed was priced to remain on hold. We believe that these stances are vulnerable.<\/p>\n

Monetary policies remain pivotal for many assets, that of the Fed especially. Central banks\u2019
\nmeeting, minutes and comments are fuelling frequent asset rotations, which are difficult to
\narbitrage. This was yet again illustrated by the latest BoJ disappointment.<\/p>\n

In that context, most asset managers (traditional and alternative alike) were reluctant to join
\nin the rally and remained cautious. As a result funds\u2019 returns are looking increasingly pale
\ncompared to major market indices. Managers are likely to feel a growing pressure on alpha
\ngeneration.<\/p>\n

We are keeping a slight overweight on CTAs. The environment is mixed but trend followers
\nprovide a hedge against volatility and a source of diversification.<\/quote>
\n We currently find the
\ngreatest alpha potential in the Merger arbitrage, in the variable bias L\/S Equity and in the
\nCredit funds.<\/p>\n

\"hedge_funds_still_risk-off.jpg\"<\/a>