Absolute Returns

Since the U.S. presidential election on November 3 th, the USD has started a descent that may have legs under the new administration. The easing of trade tensions and an accommodative policy mix could put additional pressure on the DXY, which was down -1.7% since the election, to the benefit of European currencies.

Several hedge fund strategies have momentum biases, in particular L/S Equity, and CTAs. Considering the fact that this rotation took place in a bullish environment, most hedge fund strategies ended the week in positive territory.

If past elections provide any guidance, prospects for a Trump reelection look slim. History suggests that a second term reelection almost always requires strong growth. In most past election campaigns, polls did not materially shift after October.

Momentum is a strategy which buys stocks trending higher and sells stocks on a downtrend within an index. It is systematic and has no considerations for earnings, valuation, or other fundamental metrics such as dividends.

The market crash that began in March sent the spread of EM debt (for the hard currency aggregate) to nearly 700 bps. It is now only 30 bps away from the pre-crisis level. This spread tightening reflects the ongoing economic recovery EM countries. Trends in Covid-19 are taking the right direction, except for India.