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Picture of a flat graph

Macro managers are scratching their heads, says Lyxor

Hedge funds were overall flat this week, emphasising their appealing profile in the current environment, according to the latest weekly brief from Lyxor’s Cross Asset Research team.

The Italian stress mainly hurt CTAs, hit in their long bonds. L/S Equity funds also suffered from derisking, in line with their cautious exposure. By contrast, Event Driven, away from the epicentre, proved resilient.
Markets will have to go on dealing with multiple uncertainties, including concerns about the continued integration of the eurozone, trade fears, a potential revival of risk linked to Iran later in the year, disappointing economic data everywhere apart from the US, a strong dollar still threatening some economies, and monetary normalisation progressing in the US. Conditions are likely to remain challenging for most investment styles.
Lyxor writes: “We wondered how Macro funds are dealing with this. Our bottom-up managers’ survey confirms our top-down observations. The surging correlation across returns of a large basket of diversified Macro funds year-to-date tells us that they are facing the same drivers and that they struggle to find de-correlating arbitrages.”
“Meanwhile, the low dispersion across their returns and their modest sensitivity to markets suggest that a majority of them are refraining from taking aggressive risk. Yet, we find that the alpha they individually extract has been increasingly volatile this year. This shows that they struggled to navigate without scars the minefield of uncertainties coming and going back and forth. As a result, they are flat or so year-to date.”

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