Philippe Ferreira

Philippe Ferreira

Director, Senior Cross-Asset Strategist

Lyxor Asset Management


CTAs Lead The Pack In August

03 Sep 2018

Investment Partners

European investors bore the brunt of the market turmoil over the course of August. Turkey’s currency crisis and the widening of Italian sovereign spreads translated into an underperformance of European assets versus the U.S, both equity and high yield credit. EM assets, especially sovereign credit and currencies suffered significantly.

In the hedge fund space, CTAs outperformed and delivered positive returns in the range of 2-3% depending on the benchmark. Their long exposures to bonds and equities were both rewarding. From a regional perspective, their cautious stance on European equities was supportive but short positions on US bonds detracted as Treasury yields fell. Meanwhile, their long energy / short gold positions on commodities were a source of gains.

On a negative note, Global Macro and L/S Equity strategies underperformed. EM Macro funds got hammered by Turkey’s currency meltdown and its ramifications to the EMFX space while others suffered on long positions on Nordic currencies which depreciated against both the USD and the EUR. Meanwhile, L/S Equity funds reduced their momentum bias and missed the recovery in this segment of equity markets. Merger arbitrage strategies also underperformed on the back of the widening of some deal spreads such as Rockwell Collins vs. United Technologies in the Aerospace/ Defense sector.

In terms of investment recommendations, we have maintained a neutral stance on CTAs until now. But we consider that there are supportive factors which suggest that an overweight stance might be deserved. Trend following conditions have improved over the course of August. Across asset classes, positioning is not overextended and the risk of a significant trend reversal appears well contained. The main risk would be a significant rise in bond yields in Europe and Japan, which would hurt long bond positions. But declining energy base effects suggests inflation might have reached a peak for some quarters, hence limiting the downside risk for CTAs.


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