UBS Notes CTAs, Quant Macro Outperforms While USD Trade Fails

ubs hedge fund ls CTAs

CTAs and quant macro strategies performed the best among hedge fund strategies in April but are still down year to date, while long short strategies saw crowded shorts underperform crowded long stock strategies, according to the UBS Hedge Fund Monthly Update for April.

Crowded shorts and longs

Some of the most popular crowded shorts in the tech sector were International Business Machines Corp. (NYSE:IBM), up 2.1% on the month, and Intel Corporation (NASDAQ:INTC), which performed positively by 3.4% on the month. Some of the profitable crowded shorts included LinkedIn Corp (NYSE:LNKD), down -17%, salesforce.com, inc. (NYSE:CRM), down -9.5%.  The average crowded short play delivered -6.4% negative performance. Crowded longs included Facebook Inc (NASDAQ:FB), down -0.8%, Google Inc (NASDAQ:GOOG) (NASDAQ:GOOGL), down -4.1%, eBay Inc (NASDAQ:EBAY), -6.2% and Yahoo! Inc. (NASDAQ:YHOO), up 0.1% on the month.  In consumer discretionary Tesla Motors Inc (NASDAQ:TSLA) was a crowded short, -0.3% along with J.C. Penney Company, Inc. (NYSE:JCP), -1.2%.  Some crowded long names were Amazon.com, Inc. (NASDAQ:AMZN), which got hit -9.6% on the month, Time Warner Cable Inc (NYSE:TWC), up 3.1%.

Fall in US interest rates benefits CTAs

The UBS report noted that as general interest rates fell month over month this generated gains for CTAs but was “frustrating” for global macro funds. “There has been some mixed US economic data, but overall it has been relatively strong and the Fed continues to taper its asset purchases. Short US fixed income is one of the biggest consensus trades amongst macro hedge funds as they bet on higher US interest rates – but this trade failed to work (again) in April, causing losses for many funds. UBS client core positioning is in the belly of curve (3-7 yrs), and our rates desk estimates 60-70% of shorts are in this range,” the report noted.

Long US dollar popular trade that isn’t working, M&A Strong

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The report noted that “overall macro hedge funds remain USD bulls, particularly against the EUR, JPY and AUD,” but these trades were not profitable in April nor where they profitable year to date.

The report also noted that global merger and acquisition volume is the highest it has been since the 2008 financial crisis.  “In April, global M&A volume surged +57% month over month, with $429B of announced M&A deals vs. $273B the previous month. Three of the five largest deals in April were Health Care, led by Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s $44B proposed acquisition of Allergan, Inc. (NYSE:AGN). Global deal count of 2,389 in April was -7% lower than March’s 2,559 deals.”

Most in demand hedge fund strategies still equity based

CTAs

 

Equity hedge fund strategies remained the most in demand strategies – by far – while event driven strategies have replaced macro strategies in the second spot, followed by credit strategies, followed by the lagging CTA category. Overall net inflows into hedge funds totaled $26.3 billion, taking the hedge fund industry to over $2.7 trillion in assets under management.

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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