Philippe Ferreira

Philippe Ferreira

Director, Senior Cross-Asset Strategist

Lyxor Asset Management


Low beta strategies for a higher vol regime

13 Apr 2018

Investment Partners

Equity market volatility stayed elevated in March, as technology stocks were under pressure over user data privacy and the U.S. administration announced trade barriers targeting China. The MSCI World was down 2.5%, extending February’s 4.3% loss. U.S. and Japanese indices underperformed, while the European market outperformed.

Unstable market conditions were supportive for hedge funds, in relative terms. Liquid hedge fund benchmarks were down -1% in March, with Distressed and Special Situation strategies underperforming. On a positive note, low beta strategies did well. Strategies such as CTAs, Merger Arbitrage, Fixed Income Arbitrage and L/S Equity Market Neutral outperformed in March. These are typical low beta strategies that are increasingly attractive as the tradeoff between strong growth and monetary tightening is set to translate into a structurally higher volatility regime. 

Going forward, we believe that risk assets could experience a short term rebound as market sentiment appears to be too depressed compared to strong fundamentals. But longer term, our appetite for risk is clearly diminishing. In terms of hedge fund recommendations, this will gradually translate into a reweighting of low beta strategies such as CTAs, on which we are currently Underweight and L/S Equity Market Neutral on which we are Neutral at present. It will also translate into a downgrade of high beta strategies such as Special Situations, on which we are currently Overweight.

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