{"id":73463,"date":"2018-09-14T00:54:00","date_gmt":"2018-09-13T22:54:00","guid":{"rendered":"http:\/\/beta.next-finance.net\/strategie\/higher-volatility-puts-low-beta-strategies-in-asweet-spot\/"},"modified":"2020-01-01T22:27:47","modified_gmt":"2020-01-01T21:27:47","slug":"higher-volatility-puts-low-beta-strategies-in-asweet-spot","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/strategie\/higher-volatility-puts-low-beta-strategies-in-asweet-spot\/","title":{"rendered":"Higher volatility puts Low Beta strategies in asweet spot"},"content":{"rendered":"

This occurred in a context where the probability of an
\nescalation of trade tensions between the U.S. and China has increased. The deadline to make public
\ncomments on $ 200 billion of proposed U.S. tariffs on China\u2019s imports was last Thursday. Early August, the
\nU.S. President signaled the tariff could be as high as 25%. Meanwhile, EM assets continued to sell off.<\/p>\n

In the hedge fund space, low beta strategies outperformed last week. Merger Arbitrage, which has structurally
\na low beta versus equity markets, was the sole strategy in positive territory.<\/strong> Positive contributors to
\nperformance include the Aetna vs. CVS deal whose deal spread tightened on the back of media reports
\nsuggesting the DoJ may approve the deal within the next few weeks. The DoJ is also reportedly close to
\napproving Cigna’s acquisition of Express Scripts, a significant deal in Merger Arbitrage portfolios. Then, the
\nSky vs Comcast deal spread also edged lower in early September, contributing positively to performance.
\nMeanwhile, CTAs were flat despite their long U.S. equities positions and Fixed Income Arbitrage was slightly
\ndown.
\nStrategies with a higher market beta, such as L\/S Equity and Special Situations were down 1.2% and
\n0.8%, respectively. Over the summer, L\/S Equity strategies took more directionality by increasing marketbeta,
\nthey also recently rebuilt their tilt to cyclicals, which was harmful early September.<\/quote><\/p>\n

In terms of investment recommendations, we maintained an overweight stance on Merger Arbitrage.<\/strong> The
\nstrategy appears to be perfectly fit for current market conditions, where downside risks remain elevated
\namidst high political uncertainty and rich valuations across equity markets. Deal spreads have narrowed lately
\nbut the strategy maintains its appeal thanks to its low volatility in returns and low correlation to traditional
\nassets.
\nThe beta of Merger Arbitrage returns versus the MSCI World has historically been below 10%. Finally,
\nwhile M&A activity will probably be softer in Q3 compared to the same quarter in the past two years, it is still
\nstrong in absolute terms.<\/quote>
\n\"merger_arbitrage_is_a_strategy_with_a_market_beta_structurally_below_10_.jpg\"<\/a>
\n