Summer is over, says Lyxor
16 September 2014 Paris
Image: Shutterstock
The late summer market rally has lost momentum, with equities drifting lower and high yield spreads widening in Europe and in the US, according to a report from Lyxor Asset Management.
The report also suggests that this cautious market sentiment is related to the Scottish referendum that takes place on 18 September. Over the last month, the gap between ‘yes’ and ‘no’ has significantly narrowed, with some polls even suggesting independentists may win the battle.
Such uncertainties about the future of the union have led hedge funds to trim their long positions on the pound and US dollar. Net positions were cut from +5 percent of their net assets at the end of May to -1.3 percent in early September.
Head of research for Lyxor, Philippe Ferreira, said: “Across strategies, there have been trend reversals that we expect to be short term movements: global macro and long/short equity credit (L/S) were up after having underperformed over the last month; commodity trading advisor-managed funds (CTAs) and event driven funds were flat to negative, after having been on the rise recently.”
The performance of CTAs was mixed in the week beginning 8 September, with half of the funds delivering positive returns. Short-term funds outperformed long term strategies, mainly thanks to their short allocation to commodities.
The rates bucket was the main source of losses: long-term rates rose in the same week in Europe and in the US, leading several commentators to call the end of the bond market rally. Long positioning on the European fixed income market thus generated losses.
Ferreira continued: “On the positive side, equities proved supportive. US indices edged lower, but European equities were up on the back of the monetary policy easing in early September.”
Finally, the Forex bucket added some gains: with funds taking advantage of the dovish stance of the European Central Bank to reinforce their short positions. The euro was therefore an important source of gain.
The report also suggests that this cautious market sentiment is related to the Scottish referendum that takes place on 18 September. Over the last month, the gap between ‘yes’ and ‘no’ has significantly narrowed, with some polls even suggesting independentists may win the battle.
Such uncertainties about the future of the union have led hedge funds to trim their long positions on the pound and US dollar. Net positions were cut from +5 percent of their net assets at the end of May to -1.3 percent in early September.
Head of research for Lyxor, Philippe Ferreira, said: “Across strategies, there have been trend reversals that we expect to be short term movements: global macro and long/short equity credit (L/S) were up after having underperformed over the last month; commodity trading advisor-managed funds (CTAs) and event driven funds were flat to negative, after having been on the rise recently.”
The performance of CTAs was mixed in the week beginning 8 September, with half of the funds delivering positive returns. Short-term funds outperformed long term strategies, mainly thanks to their short allocation to commodities.
The rates bucket was the main source of losses: long-term rates rose in the same week in Europe and in the US, leading several commentators to call the end of the bond market rally. Long positioning on the European fixed income market thus generated losses.
Ferreira continued: “On the positive side, equities proved supportive. US indices edged lower, but European equities were up on the back of the monetary policy easing in early September.”
Finally, the Forex bucket added some gains: with funds taking advantage of the dovish stance of the European Central Bank to reinforce their short positions. The euro was therefore an important source of gain.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
