Arbitrage

Lyxor’s L/S Equity Neutral peer group was down -2.8% year-to-date, hurt by extreme trading conditions and the constituents’ average market beta of 20%. The environment has been challenging for the strategy amid extreme stock volatility and unsettling heavy systematic trading volumes.

The European Securities and Markets Authority (ESMA) has issued a decision temporarily requiring the holders of net short positions in shares traded on a European Union (EU) regulated market to notify the relevant national competent authority (NCA) if the position reaches or exceeds 0.1% of the issued share capital after the entry into force of the decision.

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.

Progress in trade talks between the U.S. and China and in Brexit negotiations knocked down safe assets last week. Bond yields rose in most developed countries and gold prices fell, as the stance on both thorny issues reversed and turned positive.

Volatility regimes are decisive for most investment approaches, particularly hedge funds. For both top down players (CTAs, Global Macro, FI Sovereign Arb.) and bottom-up strategies (L/S Equity, Event Driven, Credit Arb.), volatility deeply influence their universe and the trendiness of opportunities.