Cyclical sectors have done better than defensive sectors (except health care stocks which have done well) as looser fiscal policy is expected to support economic activity. Coupled with the possibility that the Trump administration will implement protectionist trade policies, expectations of fiscal stimulus are leading to a sharp repricing of bond yields.
Although we do not yet have comprehensive data on hedge fund performance covering the period since the U.S. election, our initial estimates suggest that:
- i) Long term CTAs were down as losses on their long fixed income positions were only partially offset by gains on long equities, long USD and long energy in commodities.
- ii) Global Macro experienced a wide dispersion in returns. Some strategies that were long EM currencies (MXN in particular) experienced losses in the range of 2-3% over the recent days. Meanwhile, managers that were short duration in fixed income were up and some managers investing in equities were flat as gains on longs on European and Japanese indices were offset by losses on shorts on U.S. indices.
- iii) Within the L/S equity space the long biased managers benefitted from the market rally as well as from positions on health care stocks. EM L/S specialists are down in the order of 2% on the day of the election and are deleveraging quite aggressively.
- iv) Event Driven strategies marginally benefitted from their exposure to health care stocks but overall their lower net exposure ahead of the election prevented them from joining the market rally. Implications for the strategy are rather long term and could be positive to the extent that the march towards tougher regulations might be stopped.
- v) L/S Credit and Fixed Income Arbitrage were resilient in front of higher bond yields. We estimate L/S Credit funds were down 8 to 15 bps on the day of the election.
