{"id":76203,"date":"2018-12-20T09:24:47","date_gmt":"2018-12-20T08:24:47","guid":{"rendered":"http:\/\/beta.next-finance.net\/news\/long-short-credit-resilience-defies-investorsconcerns\/"},"modified":"2020-01-01T22:42:27","modified_gmt":"2020-01-01T21:42:27","slug":"long-short-credit-resilience-defies-investorsconcerns","status":"publish","type":"post","link":"http:\/\/beta.next-finance.net\/en\/news\/long-short-credit-resilience-defies-investorsconcerns\/","title":{"rendered":"Long Short Credit resilience defies investors\u2019concerns"},"content":{"rendered":"

Risk aversion continues to prevail so far in Q4, despite lower equity valuations and wider credit spreads.
\nExpectations of a year-end rally in risk assets have faded, as concerns over Brexit remain acute and the
\nprobability of a recession in the U.S. keeps rising, albeit at a low level. The growth divergence between the U.S.
\nand Europe has further widened in Q4, pushing the U.S. Dollar index to record highs this year in a context of
\nmultiple headwinds, according to the ECB at its latest monetary policy meeting.<\/p>\n

These market conditions continue to favor low beta hedge fund strategies. Since early December, Merger
\nArbitrage and L\/S Equity Market Neutral has outperformed, while L\/S Equity remains under pressure. Relative
\nValue Arbitrage was resilient. Based on a peer group of 28 onshore L\/S Credit strategies, the median
\nperformance was -0.3% month-to-date (up until December 12th) and -1.3% quarter-to-date. Yet, liquidity
\nconcerns have investors in L\/S Credit strategies in defensive mode.
\nAccording to Morningstar data, onshore
\nFixed Income strategies experienced large outflows in September and October.<\/quote><\/p>\n

Going forward, we note that U.S. corporate leverage has stabilized since 2015 at levels that prevailed in the
\nrun-up to the Global Financial Crisis. High-yield default rates forecasted by rating agencies in twelve months
\nremain nonetheless benign for Europe and the U.S. These are expected to remain below 2.5% against an
\naverage of 2.7% and 3.4%, respectively, over the past five years. Yet, liquidity tensions could flare up rapidly in
\ncurrent market conditions and cause wide fluctuations in asset prices. We ourselves are bearish on credit. We
\nexpect wider spreads across regions due to softer macro data, the end of Quantitative Easing in the euro area
\nand asset reallocation out of credit in favor of Treasuries. Investors are thus probably right to be concerned. Yet,
\nL\/S Credit managers are defensive in their positioning as illustrated by resilience in Q4.
\nIn our view, the above
\nsupports a Neutral stance on L\/S Credit strategies and a preference for strategies with lower market
\ndirectionality. Such strategies could take advantage of higher dispersion in credit markets and generate
\nperformance from their short books.<\/quote><\/p>\n

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