In April, CTAs benefitted from the robust performance of equity markets, as well as from the rebound of the U.S. Dollar Index and commodity price movements.
Early May, as market concerns about trade wars resurfaced and impacted negatively risk assets, CTAs appear nonetheless to be resilient thanks to long fixed income and long US Dollar positions.
Our views on CTAs stay neutral, which means that we recommend a 10-15% allocation to CTAs in a hedge fund portfolio over the next 6 to 12 months.
Concurrently, strategies such as Special Situations and L/S Equity Directional also outperformed in April, fueled in part by their structurally high equity market beta, in relative terms. On a negative note, L/S Equity Market Neutral continued to underperform last month, in a context where its sensitivity to the momentum risk factor in equities increased, according to our estimates.
Merger Arbitrage also underperformed in April, though returns were in positive territory. We keep an OW stance on Merger Arbitrage, which offers a low correlation to equities and a low volatility in returns.
