The positive correlation between equity and bond returns is an issue for investors looking for protection and
\ndiversification.<\/quote><\/p>\nIn a context where investors are growing increasingly uncomfortable with the valuation of risk assets,
\nAlternative UCITs continued to experience sizeable inflows in early 2018. Over the past three months
\n(November-January), Alternative UCITs funds in Europe saw significant inflows (EUR 14.2bn), according to
\nMorningstar.<\/p>\nIn terms of performance, the Hedge Fund industry was down in February but managed to outperform
\ntraditional asset classes. Yet, the devil is in the details. Performance was dragged down by CTAs, which
\nsuffered from trend reversals in equities and commodities. Some segments of the Even-Driven strategy,
\nnamely Special Situation funds, also suffered as a result of their elevated beta to equity markets.
\nOn a positive note, Fixed Income Arbitrage, Market Neutral L\/S and Merger Arbitrage were highly resilient.<\/p>\n
The positive sensitivity of Fixed Income Arbitrage to rising bond yields was again demonstrated, as well as
\nthe low beta features of merger arbitrage. These are two strategies on which we maintain an Overweight
\nstance going forward.<\/quote>
\n With regards to Market Neutral L\/S, on which we have been Underweight, the
\nstrategy benefitted from the absence of rotation in risk factors. Finally, L\/S Equity funds were also resilient,
\nand variable biased funds appear well fit to market conditions. In effect, the market environment might
\nremain unstable going forward, especially as the U.S. administration turns aggressive on trade barriers. <\/p>\n
![\"the_correlation_regime_shift_is_a_hurdle_for_investors_but_fixed_income_arbitrage_brings_protection.jpg\"](\"http:\/\/www.next-finance.net\/http:\/\/beta.next-finance.net\/wp-content\/uploads\/2018\/03\/the_correlation_regime_shift_is_a_hurdle_for_investors_but_fixed_income_arbitrage_brings_protection.jpg\")
<\/a>