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Hedge funds volatile in July

Risk-on markets bolstered hedge fund returns in July, with L/S Equity strategies outperforming, according to the latest Weekly Brief from Lyxor’s Cross Asset Research team. Yet the reversal in growth stocks, due to the tech reversal at the end of the period, eroded some of the previous gains. Market Neutral managers ended the month flat as a result.  

CTAs were volatile in July. They made the most from rising equity markets and higher Treasury yields. Yet, half of their gains were eroded by speculations on the BoJ’s monetary policy stance at the end of the period. Their long Japanese bonds and their short JPY/USD weighted on performance.
Event Driven strategies were caught off-guard by US- China trade tensions, in particular through the NXP/Qualcomm deal.
Alternative UCITs strategies continued to attract investors in June, but at a slowing pace, with EUR 1.38 billion of net inflows.
The slowdown in the flow’s pace reflects a shift in investors’ positioning across strategies. In June, market players withdrew their investments from Multi- strategy and Fixed Income, two strategies that gather two thirds of Alternative UCITs’ total AUM.
Nonetheless, the Alternative UCITs industry remained attractive in 2018 thus far. With EUR 21.9 billion of net inflows year-to-date, the industry’s total net assets reached EUR 399 billion. This suggests that the quest for diversification and risk mitigation remains centre stage in portfolio allocations amidst multiple uncertainties.
In Q2-2018, investors shifted their positioning across Alternative UCITs strategies.
Inflows sharply accelerated within Market Neutral strategies. In June, the strategy enjoyed its biggest monthly inflows since March 2016 (EUR 1.4 billion).
Additionally, investors have piled into L/S Equity strategies since May, with growing appetite for US funds (+EUR 720 million in Q2). Rising equity markets and strong earnings season in the U.S. remained supportive for fundamental stock pickers. Inflows towards European managers remained steady (+EUR 761 million).
By contrast, investors stepped out from Fixed Income and Multi-strategy funds in Q2. CTAs were disregarded in June, amidst mixed trend following conditions.

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