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Trend reversals briefly halted the CTA rise

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Despite the escalation of trade tensions during the third quarter, economic activity has remained quite resilient. Macro data releases even managed to beat expectations in the U.S. and in Japan, leading to a sudden rise in bond yields over the course of September. This movement had important implications in equity markets. It translated into a rebound in value stocks and a reversal in momentum stocks.

In the space of Alternative strategies, CTA and Macro strategies were impacted by these developments. CTAs were down -2.6% in September due to their long positioning on fixed income, while Global Macro strategies were up +1.4%. Concurrently, Event Driven and L/S Credit strategies were slightly up (+0.2 and +0.3% respectively) and L/S Equity strategies were flat. Yet, the dispersion within L/S Equity strategies was higher than usual in September due to sector rotations.

Yet, as of early Q4, the rise in bond yields and the sector rotation in equities appears to be behind us. CTAs rebounded at the turn of the quarter. The rebound in value stocks proved to be short lived and we stay cautious on this risk factor at this stage of the business cycle.

Going forward, our stance remains defensive on equities (U/W) on the back of the global industrial slowdown, geopolitical risks and the challenging earnings season which is about to start in the U.S. In the space of alternative strategies, we have a preference for Market Neutral L/S vs. Directional L/S and we stay constructive on directional L/S Credit and EM Global Macro strategies in a low bond yield environment which is set to last.

Philippe Ferreira , October 2019

Article also available in : English | français

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