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U.S. Elections, Covid-19 Vaccine News Provide Mixed Results For Hedge Funds

The recent news relating to the U.S. Presidential election and the Pfizer-sponsored Covid-19 vaccine provided hedge funds with mixed results, according to Lyxor Asset Management's Cross-Asset Research Weekly Brief.

Post-election, all strategies were up, led by L/S Equity, Special Situation, and Global Macro. In contrast, returns were milder and uneven after the vaccine announcement. Whilst the news was most beneficial for Special Situation and L/S Credit strategies (boosted by their beta rather than by their alpha, according to Lyxor), it was painful for CTAs and some Global Macro funds. Despite that, these funds haven't changed their positioning much at all, according to the report.

"CTAs have not substantially modified their exposures, still modestly short DM equities but adding to EM equities. They also kept their long dollar and bonds. Global Macro had raised equity exposures in October and only marginally added to them since last week. They continue to shave off their bond holdings, while remaining tactically neutral+ on USD. EM and China hedge funds were cautious ahead of U.S. elections but are now adding risk."

L/S Equity returns were highly dispersed; caught off guard, managers overweighing Growth and “work-from-home” stocks at the expense of Value and Covid-19’s prime victims were severely hit, especially in Europe given the rally in financial and airlines stocks.

"Long positions contributed positively but shorts faced a major squeeze, hitting Quant and L/S Neutral strategies with a double whammy," says the report. "L/S Equity portfolios were already positioned for U.S. elections and were little changed thereafter. The knee-jerk reaction after the vaccine news was to cover shorts while reducing their long positions (resulting in lower gross exposures)."


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