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Lyxor says hedge funds produced comforting results post Brexit vote

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Lyxor’s Cross Asset Research team reports that hedge funds remained resilient in the face of the Brexit result last week. The firm writes that risk assets were under heavy selling pressure at the opening in Europe on June 24th, with financials down by double digits.

“Over the course of the day, risk assets found a floor as central banks stated they stand ready to act. Meanwhile, safe havens such as sovereign bonds in the UK and in core EMU countries moved higher, as well as precious metals and the JPYUSD cross. The outcome of the vote has triggered widespread reactions from the authorities and this may continue over the next days. Such actions have the potential to tame market uncertainty but it seems too early to chase opportunities in our view.”
 
The firm writes that the hedge fund industry tends to protect portfolios under such circumstances and initial estimates are, they say, rather comforting. “CTAs outperform and stand in positive territory post-Brexit (in the +2-3 per cent range for the day). Macro managers have the potential to take advantage of such market disruptions but the range of their performances is likely to be wide (in the -2.5 per cent/ +0.5 per cent). Some macro managers were actually long equities going into the vote. We estimate that L/S Equity managers are down, but their negative performance is expected to remain in a moderate range, say -1/-2 per cent.
 
“Event-Driven have a higher beta than other hedge fund strategies but are mainly exposed to the US market. They could be down in the -0.5/-1.5 per cent range. Finally, the assets traded by L/S Credit could face liquidity issues and performance estimates are more hazardous. Yet, several managers cut exposure to financials ahead of the vote.”

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