CTAS SHOW SIGNS OF RECOVERY

Transcription

1 28 AUGUST 2017 CTAS SHOW SIGNS OF RECOVERY Philippe Ferreira Senior Strategist Jean-Baptiste Berthon Senior Strategist Anne Mauny Research Analyst Recently released data on hedge fund flows confirm that investors are currently divesting from CTAs. As usual, outflows tend to track recent underperformance with a lag, which can be substantial at times. Between late August 2016 and late August 2017, CTAs experienced a 10% drawdown according to the Lyxor CTA Broad Index. Other measures of CTA performance paint a similar picture. Underperformance over the recent quarters has been caused by frequent trend reversals in the FX, commodity and fixed income spaces. Nonetheless, investors have started to divest near the trough, which took place early July. Since then, the strategy is up +2.2% and is on track to outperform other hedge fund strategies this month. CTAs have recently benefitted from improving trend following conditions in the foreign exchange market (both DM and EM) and reshuffled their portfolios accordingly. Previous short positions on both the EUR and the CAD versus USD were fully reversed over the recent months. Long positions on both currencies are now contributing positively to performance. Meanwhile, CTAs added significantly to existing long positions on EMFX versus USD (see p.2), which are paying off as EM assets continue to attract inflows in a low bond yield environment in the developed world. Yet, the trend following environment remains mixed overall. In particular, conditions remains poor in the fixed income and commodity segments and CTAs continue to rely heavily on trends in equity markets. Considering the fact that critical budget milestones in the U.S. could further increase policy uncertainty in September, we believe that risk assets are vulnerable to some profit taking. As a result, we maintain the underweight stance on CTAs, with a preference for midterm models. We acknowledge the fact that the strategy is now relying on firmer grounds. This could lead us to revise our stance in the coming weeks. In parallel, it is interesting to note that Global Macro, Fixed Income Arbitrage and L/S Equity strategies have experienced sizeable inflows over the last three months. The trend is consistent when looking at flows into onshore or offshore alternative funds. Alternative UCITs saw inflows in July, led by Fixed Income Arbitrage and L/S Equity As of July Source: Morningstar, Macrobond, Lyxor AM The views and opinions expressed in this document are those of the authors and are not given or endorsed by the company. This document is for the exclusive use of investors acting on their own account and categorized either as «eligible counterparties» or «professional clients» within the meaning of markets in financial instruments directive 2004/39/CE. See important disclaimer at the end of this document.

2 THE WEEK IN 3 CHARTS Hedge Fund Snapshot: Event-Driven strategies take a summer break Lyxor Hedge Fund Index 0.3% 0.3% 0.3% CTA Broad Index 0.5% 1.1% -3.1% Event Driven Broad Index 0.3% -0.5% 6.2% Fixed Income Broad Index 0.1% -0.1% 3.9% L/S Equity Broad Index 0.6% 0.8% 3.6% Global Macro Index 0.2% 0.1% -3.5% MSCI World Index -0.2% -0.8% 10.5% Barclays Global Agg Bond Index 0.2% 0.7% 2.8% CTAs and L/S Equity strategies outperformed last week, in a context where conditions for quantitative strategies have improved lately. In particular, CTAs have increased their exposure to EMFX, an asset class which continues to experience supportive trend following conditions. All hedge fund strategies were in positive territory last week. Yet, on a month-to-date basis, we note that Event-Driven performance is taking a pause after having outperformed since the beginning of the year. Special situations funds are in negative territory month-to-date on the back of negative contributions from both the consumer cyclical and non cyclical sectors. Trend following conditions in EMFX supported CTAs Cross asset trend indices suggest that trend following conditions in EMFX have further improved over the recent weeks. A virtuous cycle has engaged in Emerging Markets over the recent quarters. Low bond yields in the U.S. translated into capital flows into EM assets and EMFX appreciation. Yet, overall trend following conditions remain mixed, in particular in the commodity and fixed income spaces. Finally, trends in equities remain supportive, though we fear that increasing political uncertainties in the U.S. could lead to some profit taking as we approach critical budget milestones in the coming weeks in the U.S. As of August 23 rd, Source: Bloomberg, Barclays, Lyxor AM CTAs have added to EMFX net long positions lately Net exposure to FX vs. USD, %NAV In a context where trend following conditions in G7 currencies have improved over the last two months, CTAs have significantly reshuffled their FX portfolios. Their earlier short stance on both the EUR and the CAD vs. USD was fully reversed. Meanwhile, they added to existing short positions on the GBP and JPY vs. USD. They also added significantly to existing long positions on EMFX vs. USD ( others in the chart). Overall, CTAs have fared better since early July and are now relying on firmer grounds compared to a quarter ago when the strategy was too heavily reliant in trends in equity markets. Others mainly represent EM currencies. Equally weighted. Source: Lyxor AM 2

3 CTAS BACK TO GREEN CTA Broad Index 0.5% 1.1% -3.1% CTA Long Term 0.7% 1.6% -3.3% CTA Short Term -1.6% -4.2% -0.8% Commodities contributed to gains last week Net exposure to commodities, % NAV CTAs delivered solid returns last week. Positive trends in commodities, FX, and fixed income fuelled gains. The commodity bucket enjoyed the largest gains with the exposure to copper being the main contributor. In a context where global wheat stocks hit a new high (according to the International Grains Council), short exposure to wheat futures was also supportive. FX clusters outperformed as well. The most profitable trends were seen in long CAD and AUD, followed by long EM, vs. USD. These positions benefitted from expected tightening by the Bank of Canada and overall weaker dollar. On the fixed income side, most systems ended the week on a high note on the back of the long bias on G10 fixed income. Equities turned moderately detrimental, as U.S. indices edged lower amid rising political uncertainties. Positioning on Japanese equities also added to equity losses. Equally weighted. Source: Lyxor AM GLOBAL MACRO RECOUPING LOSSES Global Macro Index 0.2% 0.1% -3.5% Commodities resilience was positive Net exposure to Commodities, % NAV Global Macro managers started to recoup some of the lost ground as equities and commodities contributed positively to gains. In the equity cluster, short positions on U.S. stocks were rewarding. Positions on EM equities also proved supportive as Asian indices posted gains. Yet, the negative performance of Japanese stocks erased some profits. The losing streak in commodities came to an end. Long positions on energy were rewarding on the back of declining U.S. oil inventories. Copper prices hit their highest level since November 2014 on expectations of tighter supply. However, agriculturals detracted and hampered the overall positive performance. The FX bucket was mixed. Gains from long EMFX vs. USD were balanced out by exposure to CAD and EUR vs. USD. The fixed income bucket contributed negatively. Short U.S. exposure detracted as U.S. policy doubts translated into lower Treasury yields. Positioning on EMU fixed income contributed to partially offset the losses. Equally weighted. Source: Lyxor AM 3

4 L/S EQUITY QUANT MANAGERS ON THE RISE L/S Equity Broad Index 0.6% 0.8% 3.6% Long Bias -0.2% -0.7% 1.9% Market Neutral 0.3% 1.3% 4.6% Variable Bias 0.6% 0.8% 4.8% L/S Equity funds remain sensitive to cyclical sectors Net exposure to sectors, % NAV In the U.S., broad equity market indices fell, with large capitalization stocks somewhat outperforming small and mid cap stocks. Value also underperformed growth, while the energy sector was deeply in the red during the period under review. Most equity hedge managers were able to deliver positive returns, despite the negative performance of broad market indices. Global variable biased managers were able to generate positive results on both the long and short side of their portfolios, with idiosyncratic performance generated from long positions in internet and basic materials. U.S. focused variable biased managers also did well, tactically trading the portfolio and reducing net exposure. European broad equity market indices were stronger than in the U.S., although still posting negative results. In this market environment, our managers in the quantitative space did well. Equally weighted. Source: Lyxor AM EVENT-DRIVEN SPECIAL SITUATIONS OUTPERFORM Event Driven Broad Index 0.3% -0.5% 6.2% Merger Arbitrage 0.0% 0.2% 5.6% Special Situations 0.6% -1.0% 6.8% Stada was the top contributor to merger arbitrage returns Stada Arzneimitte's gross spread ( ) Jul 26-Jul 02-Aug 09-Aug 16-Aug Stada Arzneimittel The Event-Driven Strategy recorded positive gains last week, with Special Situations funds outperforming and recouping losses suffered earlier in the month. On the M&A side, Stada was the top contributor. The second offer from Bain/Cinven for Stada was successfully completed. Some of the gains were offset by the Akorn/Fresenius transaction. The deal spread widened during the week as investors began questioning the deal. As for the Special Situations peers, strong performance came from positive gains in communications and consumer non-cyclical sectors. The top contributor was Liberty-Formula One, which was up by 3%, beating its industry group. Another prominent contributor was Baxter International. As of August 22 nd, Equally weighted. Source: Lyxor AM 4

5 L/S CREDIT ARBITRAGE QUIET WATERS Fixed Income Broad Index 0.1% -0.1% 3.9% L/S Credit Arbitrage 0.1% 0.2% 2.1% Credit market remained calm last week Weekly spread move, bps IG HY 4 3 With the escalating rhetoric between U.S. and North Korea slowly starting to vanish, credit markets turned towards central bank statements, as both the Fed and the ECB released their minutes recently. Overall, the market remained rather muted but the lack of higher inflation signs in Europe led the financial sector to underperform. Accordingly, the spread of the BAML European HY financials index widened by 5 bps. In the U.S., credit markets also remained on hold ahead of the Jackson Hole meeting. On the Lyxor side, funds posted mixed results. As mentioned, financials bonds came under pressure last week and were a drag for some funds. On the corporate side, the performance was also disappointing with bonds in the consumer cyclical sector underperforming. One fund managed to protect performance with macro hedges faring well US Europe Source: BAML, Lyxor AM 5

6 METHODOLOGICAL APPENDIX The information contained in this report on the performance and positioning of hedge funds is based on proprietary data from our Managed Account Platform. The universe of underlying funds is relatively stable, though it evolves according to fund openings and fund closures. Lyxor Managed Account Platform: Breakdown of Assets Under Management by Strategy Multi-Strategy 6.7% L/S Credit & Fixed Income Arb. 5.6% Global Macro 27.5% USD 12 billion of assets under management Replicating approximately USD 220 billion of AUM L/S Equity 13.0% Event Driven & Risk Arb. 21.3% CTAs 25.9% As of June 30 th, 2017 Lyxor Hedge Fund Indices Based on the complete range of funds available on the Lyxor Managed Account Platform, a universe of funds eligible for inclusion in the indices is defined on a monthly basis taking into account the following elements: - Investability threshold: to be included in any index, the managed account must have at least $3 million of AuM. - Capacity constraints: all index components must possess adequate capacity to allow for smooth index replication in the context of a regular increase in investments. - Index construction: for each index, the relative weightings of the component funds are computed on an assetweighted basis as adjusted by the relevant capacity factors. - Each Lyxor Hedge Fund Index is reviewed and rebalanced on a monthly basis. - The Index construction methodology has been designed to mitigate well-known measurement biases. Inclusions and exclusions of new Hedge Funds do not impact the historical index track record. 6

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