{"id":70403,"date":"2018-03-28T03:01:18","date_gmt":"2018-03-28T01:01:18","guid":{"rendered":"http:\/\/beta.next-finance.net\/strategie\/time-to-reinforce-neutral-fund-allocations\/"},"modified":"2020-01-01T22:17:20","modified_gmt":"2020-01-01T21:17:20","slug":"time-to-reinforce-neutral-fund-allocations","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/strategie\/time-to-reinforce-neutral-fund-allocations\/","title":{"rendered":"Time to reinforce neutral fund allocations"},"content":{"rendered":"

Regarding trade, markets had remained confident thus far before abruptly correcting this week as the
\nU.S. moved against China. After 7 months of investigation, Trump announced tariffs on about 1300
\nChinese products worth $50bn to $60bn (about 2% of Chinese exports), in tech, transport, health care \u2013
\nfor which undue technology transfers from U.S. firms to Chinese ones are suspected the most. The U.S.
\nwill also file complaints against China in the WTO, and Chinese investments in the U.S. could face
\nrestrictions. While waiting for the Chinese response, the correction was broad, with the tech, healthcare
\nsectors and key Asian suppliers\u2019 markets leading on the way down. Financials also suffered in response
\nto weaker yields. The impact was mild in commodities. The proportionality of the Chinese response
\ncould indicate how far both sides are willing to go. The broad exemptions finally granted on steel and
\naluminum seem reasonably encouraging. Hedge Funds were resilient, with the most diversifying
\nstrategies \u2013 CTAs, Merger and L\/S Neutral funds taking the lead.<\/p>\n

We think it is time to strengthen L\/S Neutral funds allocation.<\/p><\/blockquote>\n

While they faced months of challenging
\ntransversal stock rotations, we expect their environment to improve for several reasons.<\/p>\n

First, the peak in the economic momentum suggests that future stock rotations could be more
\nmacro\/cyclical driven. These are easier to capture for quant and neutral funds.<\/p>\n

Second, the return of volatility is a strong positive, the lack of which plagued the strategy for months
\nwhile forcing to raise leverage.<\/p>\n

Third, \u201cstocks\u2019 loyalty\u201d to their quant factors has returned. The correlation among stocks belonging to the
\nsame quant factor fully normalized. It suggests that quant stock-picking should become more reliable.
\nFourth, after moving in pack, the differentiation across quant factors is resuming.<\/p>\n

Fifth, the lack of rationality, visible over the latest EPS season, between stock returns and the quality of
\ntheir earnings, is unlikely to repeat.
\nThis is an improvement for neutral strategies which tend to have a
\nvalue bias.<\/quote><\/p>\n

Finally, we see more short opportunities, a noticeable improvement for neutral styles.<\/p>\n

\"widening_quant_factors_differentiation.jpg\"<\/a>