Event driven hedge funds edge higher after Trump victory

Event driven hedge funds edge higher after Trump victory

Event driven hedge funds have outperformed the market since the unexpected victory of Donald Trump in the US presidential election.

Stats from Lyxor show both merger arbitrage (+0.7%) and special situations funds (0.5%) delivering positive returns. 

On the negative side, market neutral L/S equity funds (-3.5%) suffered from the sudden sector rotation after Trump's election win.

Overall, Lyxor’s Hedge Fund Index was close to flat in November (-0.2%), with 5 out of 10 Lyxor indices in positive territory.

“The unexpected election of Mr. Trump is strengthening the case for an inflection in yields and inflation,” said Jean Baptiste Berthon, senior cross-asset strategist, Lyxor Asset Management. “Heading into 2017, we expect less monetary support and more fiscal push to make active managers’ life easier.

“On the one hand higher rates and inflation could result in more fundamental pricing, supporting more typical asset relationships. On the other hand, Trump's key proposals open various sector themes likely to foster asset dispersion. This environment should put an end to a year and a half of anemic alpha generation.” 

Donald Trump’s victory on November 8th was welcomed positively by markets.

US bonds and equities quickly priced-in the pick-up in growth, inflation and US dollar strength on the back of Trump’s economic program. 

Meanwhile, a Fed rate hike in December got priced-in. 

The bond rout extended partially to Europe and Japan, which led the USD to appreciate against EUR and JPY. 

In the equity space, US equities rose +3.4% amid sharp sector rotation. Domestic companies drove the market rally and value stocks rebounded markedly across all regions. 

Japanese equities soared, supported by the weakening of the Yen. 

In Europe, stocks fell ahead of the Dec 4 Italian referendum and the Dec 8 ECB meeting.

 Oil price volatility spiked ahead of the Nov 30 OPEC meeting in Vienna.

Eventually, Brent ended the month above $51 after an agreement was reached to reduce output quotas.

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