Lyxor

With the U.S. equity market under selling pressure in early September, the MSCI World has registered its worst week since late March, down almost -1.5%.

Market conditions have been supportive since early July, but the flattening of the Treasury curve raises questions about the probability of a U.S. recession next year. Fund manager surveys suggest investors have erred on the side of caution lately...

Europe took center stage this week, with further developments in the Italian political saga reminding investors that there are still powerful Eurosceptic forces at play and forcing investors to end their hopes of meaningful eurozone reforms. However, fading prospects of another election in the near term are providing a respite.

Unstable market conditions were supportive for hedge funds, in relative terms. Liquid hedge fund benchmarks were down -1% in March, with Distressed and Special Situations strategies underperforming. On a positive note, low beta strategies did well.

We think it is time to strengthen L/S Neutral funds allocation. While they faced months of challenging transversal stock rotations, we expect their environment to improve for several reasons.