Risk-on sentiment bolstered hedge funds’ returns last week with Lyxor’s Global Hedge Fund Index up 0.3 per cent. The most directional strategies outperformed, including L/S Equity along with Special Situations strategies.
Other strategies though, were flat.
The rise in equities and the JPYUSD depreciation supported CTAs, but long energy positions eroded some of their gains.
Overall, all hedge fund strategies refrained to add risk within portfolios. Global Macro strategies turned more bearish lately. L/S Equity shaved off their directionality and strengthened their defensive tilt. Their net exposure to equities remains nonetheless significant.
Lyxor writes: “Merger Arbitrage strategies have staged a healthy rebound since end of April, due to tighter deal spreads. They particularly benefitted from the merger approval on AT&T vs. Time Warner in June, which paved the way for other vertical integrations.”
“Strategies hold top positions in Media stocks especially. This sector enjoyed a large wave of consolidation globally. The bidding war for the control of Sky by Fox, Disney and Comcast is a good illustration of the buoyant corporate activity in this sector. The uptick of Sky’s share price since mid-June fuelled managers’ returns.”
“The DoJ decision to appeal on the AT&T-TW deal may rekindle some uncertainties around vertical deals. According to FactSet, analysts estimated that the S&P500 earnings will grow by 20 per cent in Q2 2018, which may mark the second highest growth since Q3 2010.”
“Since the end of Q1, analysts have revised up their bottom-up EPS estimates by 0.8 per cent, with upward revisions in five sectors. Energy and IT enjoyed the largest increase in expected earnings growth year-on- year in Q2. Base effect contributed to explain the exceptional expected earnings growth in Energy (+142.5 per cent). Both sectors outperformed since 31 March.”
“In average, analysts used to reduce their EPS forecasts ahead of the start of the earnings season. Yet, upward revisions did not prevent companies to surprise positively so far. With 28 companies having reported their results so far in the US, 82 per cent of them bet earnings estimates and 90 per cent surprised on revenues.”