Lyxor\u2019s L\/S Equity Neutral peer group was down -2.8% year-to-date, hurt by extreme trading conditions and the
\nconstituents\u2019 average market beta of 20%. The environment has been challenging for the strategy amid extreme stock
\nvolatility and unsettling heavy systematic trading volumes. Moreover, market moves were largely driven by speculative
\nfactors \u2013 including the Covid-19 outbreak, stimulus decisions, a self-inflicted oil price war \u2013 the impact of which to be
\nreflected with delay in macro and corporate statistics. As such, stock valuations were of poor relevance, with limited
\ncompanies\u2019 guidance and lagging analysts\u2019 revisions. As a result, fundamental stock-picking approaches implemented
\nin neutral strategies \u2013 such as DCF, financial ratio, equity risk premium or fundamental business analysis \u2013 worked poorly
\nin long books. Additionally, while stock dispersion soared, theoretically opening relative opportunities, the very fast stock
\nre-correlation (the absolute correlation of the S&P 500 stocks flirted with 0.8) forced neutral strategies to aggressively cut
\ntheir leverage. All in all, the room for stock-picking alpha shrunk over the crash period. Instead, market timing and risk
\nmanagement were key differentiators.
\nWe suspect that neutral portfolio buckets that focused on sector rotations, flow
\nand liquidity arbitrage, statistical and high-frequency trading, and big data, outperformed.<\/p>\n
Notwithstanding these challenging market conditions, L\/S Neutral strategies benefitted from mitigating factors.<\/strong><\/p>\n Unsurprisingly, they recorded positive contributions from their short books, even though short-selling was less profitable The sanitary phase of the outbreak is gradually coming at an end, with investors now increasingly focusing on the Lyxor\u2019s L\/S Equity Neutral peer group was down -2.8% year-to-date, hurt by extreme trading conditions and the
\nthan in previous bear markets for reasons detailed in the following section. Neutral strategies\u2019 elevated holding
\ndiversification also helped mitigate the surging stock correlation risk. Additionally, while volatility and dispersion across
\nquantitative factors surged, their pairwise correlation remained moderate, allowing neutral strategies to navigate some
\nof the obvious sector rotations (underperformance of consumer discretionary, energy, financial stocks vs. healthcare or
\nstaples). They generally suffered from their long value, short defensive, and quality positioning, but gained on their long
\nmomentum and short size holdings. While returns dispersion in our peer group spiked, we find that, on average, neutral
\nstrategies were down -5% over the crash episode and rebounded +2.5% after the bottom after March 23.<\/p>\n
\neconomic impact.
\nAs a result, trading conditions are normalizing and the environment is becoming more fundamentally
\ndriven, in support for neutral strategies. Yet, the risk from another relapse in trading conditions relative to their moderate
\nreward were markets to be past the trough for good, is unappealing in our view: we are U\/W.<\/p>\n","protected":false},"excerpt":{"rendered":"
\nconstituents\u2019 average market beta of 20%. The environment has been challenging for the strategy amid extreme stock
\nvolatility and unsettling heavy systematic trading volumes.<\/p>\n","protected":false},"author":1,"featured_media":90918,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[10],"tags":[2244,2245,2246,2247,2248,2249,2243,2250,2251,2252,2253],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/90920"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=90920"}],"version-history":[{"count":2,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/90920\/revisions"}],"predecessor-version":[{"id":95019,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/90920\/revisions\/95019"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/90918"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=90920"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=90920"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=90920"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}