{"id":76039,"date":"2018-12-14T00:57:05","date_gmt":"2018-12-13T23:57:05","guid":{"rendered":"http:\/\/beta.next-finance.net\/news\/market-neutral-l-s-struggles-as-momentum-stocks-take-a-hit\/"},"modified":"2020-01-01T22:41:54","modified_gmt":"2020-01-01T21:41:54","slug":"market-neutral-l-s-struggles-as-momentum-stocks-take-a-hit","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/news\/market-neutral-l-s-struggles-as-momentum-stocks-take-a-hit\/","title":{"rendered":"Market Neutral L\/S struggles as momentum stocks take a hit"},"content":{"rendered":"

Risk assets failed to reach a bottom early December despite the U.S and China agreeing to negotiate on trade
\nat the G20 summit. The near-term outlook remains unclear from political uncertainties, which prevent investors
\nfrom adding risk in portfolios despite lower equity valuations and wider credit spreads. Going forward, the
\nFederal Reserve (the \u201cFed\u201d) meeting from December 18th \u2013 19th will be critical to gauge whether its stance has
\neffectively turned less hawkish after recent comments in that direction from FOMC voting members. We think
\nthe Fed will adjust its stance, and now expect two rate hikes in 2019 vs. three in the Fed dot plot at present.<\/p>\n

The dynamic in the hedge fund space throughout November remained similar to October\u2019s, though the damage
\nwas far more limited. Merger Arbitrage outperformed while L\/S Equity and Special Situations strategies
\nunderperformed. L\/S Credit strategies remained pretty much resilient despite widening high-yield credit spreads
\nin the U.S. and Europe. <\/p>\n

Market Neutral L\/S Equity strategies were one area of disappointment in November. The strategy
\nunderperformed as momentum stocks suffered another hit. We have long highlighted the sensitivity of the
\nstrategy to the momentum equity risk factor over the long run.<\/quote>
\n Our estimates suggest that such sensitivity, which
\nwas limited in early September, has risen markedly since then (see charts below). Based on a sample of 35 L\/S
\nEquity Market Neutral UCITS strategies, the median performance was -1.6% in November, the worst was -9.1%
\nand the best was 4.1%. Only 17% of the strategies in our sample were in positive territory last month. Digging
\ninto the roots of the momentum\u2019s headwinds, we observe that it has been highly vulnerable to the reversal in
\nTechnology stocks. Finally, our views on the Market Neutral L\/S strategy have been somewhat
\ndefensive. We maintained a neutral stance on the strategy throughout the year. Our lack of enthusiasm for the
\nstrategy reflects its perpetual vulnerability to momentum reversals. At the same time, we haven\u2019t recommended
\nan outright underweight stance, due to the benefits of low beta strategies in the current environment. Our stance
\nremains unchanged with a bias towards an upgrade at a later stage, as risk appetite is likely to remain limited
\nin 2019. <\/strong> <\/p>\n

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