{"id":73964,"date":"2018-09-26T00:57:00","date_gmt":"2018-09-25T22:57:00","guid":{"rendered":"http:\/\/beta.next-finance.net\/opinion\/what-happened-to-hedge-fundsalpha-since-the-summer\/"},"modified":"2020-01-01T22:34:47","modified_gmt":"2020-01-01T21:34:47","slug":"what-happened-to-hedge-fundsalpha-since-the-summer","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/opinion\/what-happened-to-hedge-fundsalpha-since-the-summer\/","title":{"rendered":"What happened to hedge funds\u2019alpha since the summer?"},"content":{"rendered":"

L\/S Equity strategies were the primary culprits and victims. In the U.S., managers had steadily reduced their
\noverall net exposure and leverage since Q2. As a result, they partially missed the summer rally. The plunge
\nin Momentum in June was also costly, only partially recovering afterward. Stock selection in their heavyweight
\ntech, healthcare and cons. discretionary sectors didn\u2019t help enough. In Europe, strategies adequately reduced
\ntheir overall exposures ahead of the summer.
\nUnfortunately, many strategies were too early in chasing Value
\nstocks, which continued to correct.<\/quote>
\n In Asia, strategies had also turned cautious before the summer. However,
\nthey were caught in their long tech and Chinese positions, which strongly underperformed main markets.<\/p>\n

Within the L\/S Equity space, neutral strategies also suffered. In addition to the major swings in Momentum in
\nthe U.S. and in Asia, and in Value in Europe, most other factors were volatile, which steadily eroded their
\nreturns. Finally, many managers reported elevated hedging cost as one notable factor, amid declining
\nvolatility in developed markets.<\/p>\n

Meanwhile, the diversification from CTAs and Merger Arbitrage was of little help this time. Both strategies
\nwere flat or so. CTAs navigated a lack of trends in most segments, to the notable exception of EM assets.<\/quote><\/p>\n

The tightening in deal spreads before the summer left limited leeway for Merger managers to extract
\nsubstantial returns. The positions in Special Situation portfolios did generate some alpha overall, but more
\nthan offset by their costly long beta exposure. Fixed Income Arbitrage strategies remained isolated but
\nremained overall flat.<\/p>\n

In our view, the difficult summer for hedge funds in general, and for L\/S Equity, largely results from one central
\ncause: worldwide policy uncertainty.<\/quote>
\n The shifts in trade expectations, vulnerable progresses in Italy and UK,
\nthe anti-establishment push in a number of DM and EM countries, the intensifying use of economic sanctions
\nall keep markets in feverish stance, with limited source of uncorrelated returns. It prevents managers from
\ndeploying their strategy successfully. Some light might return before year-end.<\/p>\n

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