Philippe Ferreira

Philippe Ferreira

Director, Senior Cross-Asset Strategist

Lyxor Asset Management


Upgrading our stance on CTAs

22 May 2018

Investment Partners

Risk assets rebounded since the end of March, amid a buoyant earnings season in the U.S. and a sharp rebound in oil prices. Meanwhile, ten-year Treasury yields jumped in excess of 20 basis points, fueling the U.S. dollar versus the Euro and the Japanese Yen. Such FX movements contribute to explain why EMU and Japanese stocks outperformed U.S. stocks lately. So far in Q2 risk appetite is back according to some metrics, but the volatility regime in equities remains structurally above the levels recorded throughout 2017. This suggests that markets remain cautious as the tightening bias of the Fed reiterated recently and rising bond yields should continue to weigh on the present value of corporate cash flows.

Hedge fund performance since end-March has been flat according to several benchmarks. The industry has deleveraged during the market turbulence in February and March and has thus not fully captured the market rebound in Q2 to date. From the perspective of hedge fund strategies, the outperformance of Event-Driven, Global Macro and Relative Value Arbitrage was offset by the underperformance of L/S Equity and CTAs.

Our views have marginally changed lately. While we continue to express an Overweight stance on Event-Driven and Fixed Income Arbitrage and a Neutral stance on Global Macro and L/S Equity, we upgraded CTAs from Underweight to Neutral. This upgrade is taking place in a context where we find low beta strategies increasingly appealing in the context of a higher volatility regime in risk assets. CTAs also have exposures to traditional asset classes that are now much more balanced compared to a few months ago when their performance was heavily reliant on the momentum in equity markets. From that perspective, CTAs are back as a diversification strategy.

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