Hedge funds weather European banking storm
17 February 2016 Paris
Image: Shutterstock
Renewed selling pressure has translated into sharp losses for risk assets lately, with the European banking sector at the forefront of the selloff, says Lyxor Asset Management.
The asset manager’s weekly brief on hedge fund trends explained that, as usual in such episodes, equities, commodities and high yield credit were down, while ‘core’ sovereign bonds posted gains.
Investors were reassured that hedge funds have been pretty resilient in such adverse market conditions.
Lyxor's hedge fund index was down 2 percent between 2 and 9 February, while the MSCI World was down 3.3 percent, and high yield spreads widened by 40 and 60 basis points in Europe and the US, respectively.
Commodity trading advisors (CTAs) continue to outperform, while macro managers underperformed, according to the brief.
At the same time, European Bank stocks have fallen rapidly, and credit spreads have widened.
“From our understanding, this is related to a combination of factors such as: disappointing earnings; issues related to specific banks in Germany and Switzerland that are systemic; unstable regulatory conditions and concerns over global growth conditions which is leading several central banks to cut rates further into negative territory.”
“Yield curves have flattened as a result and it is hurting European banks’ profitability. But their valuation has reached such depressed levels that to us, it seems out of sync with the fundamentals.”
Lyxor concluded: “The direct impact of the European banking sector sell off on hedge funds is likely to be negligible. Strategies that have single stocks and sector biases in portfolios such as long/short equity, event-driven and long/short credit have a limited overall exposure to European banks.”
The asset manager’s weekly brief on hedge fund trends explained that, as usual in such episodes, equities, commodities and high yield credit were down, while ‘core’ sovereign bonds posted gains.
Investors were reassured that hedge funds have been pretty resilient in such adverse market conditions.
Lyxor's hedge fund index was down 2 percent between 2 and 9 February, while the MSCI World was down 3.3 percent, and high yield spreads widened by 40 and 60 basis points in Europe and the US, respectively.
Commodity trading advisors (CTAs) continue to outperform, while macro managers underperformed, according to the brief.
At the same time, European Bank stocks have fallen rapidly, and credit spreads have widened.
“From our understanding, this is related to a combination of factors such as: disappointing earnings; issues related to specific banks in Germany and Switzerland that are systemic; unstable regulatory conditions and concerns over global growth conditions which is leading several central banks to cut rates further into negative territory.”
“Yield curves have flattened as a result and it is hurting European banks’ profitability. But their valuation has reached such depressed levels that to us, it seems out of sync with the fundamentals.”
Lyxor concluded: “The direct impact of the European banking sector sell off on hedge funds is likely to be negligible. Strategies that have single stocks and sector biases in portfolios such as long/short equity, event-driven and long/short credit have a limited overall exposure to European banks.”
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