Wednesday, June 8, 2016

Hedge funds for May - better for relative value

Monthly hedge fund returns show stronger returns in relative value and event driven strategies relative to other strategies. Equity strategies have also been positive for the month with returns consistent with their lower betas. The macro themed strategies were the poor performers as reversals in Japan and changing sentiment concerning the Fed left macro traders wrongly positioned. 

A closer look at the year to date performance shows why there is significant interest in fixed income and relative value strategies. With the long bond next to commodities as the best performing asset class, strategies focused at finding opportunities in this sector have had good beta tailwinds to help performance. I

n a zero risk-free rate environment with compressed risk premiums from too much money chasing certain themes, the performance in alpha strategies for 2016 has been poor but not particularly surprising. What is disappointing is the inability of macro  strategies to consistently find advantage in global markets. An unconventional policy world is an uncertain world which does not give traders room to use old rules of thumb.

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