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Hedge funds edge higher as CTAs rally

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Hedge funds edged higher last week as CTAs and Global Macro strategies outperformed and the remaining hedge fund strategies were flat, according to the latest Weekly Brief from Lyxor’s Cross Asset Research team.

CTAs were fuelled by their long equity and energy positions while Global Macro funds benefitted from the stronger USD.
 
On a negative note, Market Neutral L/S and Special Situations ended the week in the red. On a year to date basis, Event-Driven funds remain the top performers, followed by L/S Equity funds.
 
Overall, 2017 was a good year for hedge funds which are on track to achieve their best performance since 2013. As the global growth cycle matures and monetary policies turn gradually less accommodative, hedge funds should continue to deliver attractive risk adjusted returns in 2018.
 
As the year is coming to an end, hedge funds reshuffled some of their allocations, but with discrepancies across regions and investment styles.
 
In Europe, L/S Equity funds maintained cautious positions amid revived political risk in the region. They slashed their cyclical-tilt, in particular on Financials and Consumers. Besides, they rebuilt their short positions on indices.
 
By contrast, US L/S Equity managers remained confident on the economy path. They kept their net exposures to equities relatively stable, with limited short positions. Yet, they reshuffled their allocations following the recent sector rotation. They halved their allocations to Tech to the profit of Financials and Consumer non-cyclicals.
                 
Lyxor writes: “Oil experienced strong volatility recently, on the back of OPEC and its allies’ output agreement extension, China’s slowdown and geopolitical tensions. Yet, prices continued to trade in a high range. Brent ended the week at USD63.3.
 
“Trend-following conditions in oil remained supportive for CTAs, which are increasingly long on the asset class. Last quarter, we upgraded this strategy from U/W to Neutral on the back of improving trend- following conditions, specifically on equities and commodities. We reiterate this stance for Q1 2018, as we expect trend-following in fixed income to continue to deteriorate, which prevent us upgrading CTAs to O/W.
 
“Yet we acknowledge their diversifying-nature within portfolios. They have sizeable long exposures to equities and remain long fixed income and energy.”

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