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Research

Why event-driven should be preferred to L/S equity

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Thus far in 2019, data crunchers are finding little evidence of a growth deceleration in the US, where the job market appears buoyant and manufacturing activity robust, while economic deceleration in Europe has yet to reach a bottom.

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Why event-driven should be preferred to L/S equity
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Thus far in 2019, data crunchers are finding little evidence of a growth deceleration in the US, where the job market appears buoyant and manufacturing activity robust, while economic deceleration in Europe has yet to reach a bottom. Moreover, the rebound in US equities was fueled by cyclical sectors, which are signaling renewed optimism.

Hedge fund performance in January reflected such market movements. Strategies that are more sensitive to cyclical sectors, such as L/S Equity and Special Situations, outperformed, while defensive strategies underperformed (Merger Arbitrage, L/S Equity Market Neutral, Global Macro/CTA)—though most of them did still manage to deliver positive returns.  

Looking ahead, our views remain unchanged. We continue to prefer defensive strategies such as Merger Arbitrage and Fixed Income Arbitrage, while staying cautious on high beta strategies such as L/S Equity strategies with a long market bias.

However, for those willing to add some beta to their portfolio, we believe that blended strategies within the Event-Driven space, combining Merger Arbitrage and Special Situation exposures, are more attractive than L/S Equity, with the resilient US economy and strong performance from Special Situation strategies bolstering this argument.

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