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CTAs and merger funds take the lead, says Lyxor

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Hedge fund returns were positive, led by CTAs, during the last week, mainly thanks to their long energy and bond positions, according to the latest Weekly Brief from Lyxor’s Cross Asset Research team.

Merger funds also benefitted from a rapid spread tightening across most large deals.
 
By contrast, L/S Equity funds did not benefit from the bounce. They had limited exposures to momentum and energy stocks, two key drivers this week. The earnings season, which sanctioned disappointments more than it rewarded upside surprise did not help either. Special Situations also lagged.
 
Since mid-April the turn in dollar and DM rates contributed to weaken EM markets. Over the period they underperformed and flows dried out.
 
Lyxor writes: “We observe a similar pattern across hedge fund strategies. A majority of CTAs gradually de-risked their Asian equity allocation since February. They had marginal bond exposures.
 
“Macro funds we track are now neutral in aggregate on EM equities (which concentrated on Asia). They also turned neutral on EM bonds, but still make room for meaningful relative plays. They tend to favour long LatAm and EMEA bonds over Asian.
 
“L/S Equity funds gradually de-risked their Asian exposure, especially in tech and financial positions.”

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