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Bringing you news, views and analysis since 2013

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Hedge funds up over August as investors’ fears ease

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Lyxor reports that their Hedge Fund index is up 0.7 per cent since the beginning of August, with progress in most strategies, supported by the positive performance of risky assets. 

The firm writes that The Bank of England’s activism and the Brexit timeline getting pushed back contributed toward easing investors’ fears. Meanwhile, a patient Fed kept the dollar and yields under pressure. Economic releases were mixed but evidenced the resilience of developed market consumers.
 
Emerging assets and credit were supported by the recovery in oil prices, the firm says and while cautiousness remains elevated and trading volumes remain low, better asset returns lifted some pressure off investors’ shoulders.
 
Hedge fund portfolios have seen significant reshuffling since the UK referendum, reflecting a cautious addition of risk. The firm notes that over the course of the summer, CTAs doubled their equity net exposure, neutralised their commodity positions, with longs in metals offset by shorts in energy and agricultural and kept their dollar shorts and long Euro bonds, but reduced their long US bonds.
 
Macro funds remain mildly long equities, but short US indices. They rebuilt relative trades in precious metals and energy. They remained unanimously short US bonds and long USD, especially vs. EUR and GBP. The most significant disparities can be found in European and Japanese positions, Lyxor says.
 
Event driven funds gradually increased risk. Merger funds raised exposure to European deals, and to the technology and communication sectors. Special Situation funds raised their stakes in resources, consumer non-cyclical and technology.
 
L/S Equity funds mildly raised their exposures. US managers reinforced their stakes in the resources and financial sectors. Their European peers preferred the high yielding stocks. Japanese funds returned to financials amid receding prospects of negative rate policy. The firm writes that these portfolio changes emphasise both lower risk aversion and a persisting wait-and-see stance. The decline in US bonds positions is consistent with rising Fed concerns.

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