Weekly brief

Event-Driven Leads The Pack In April

Risk assets experienced a sharp recovery since March 23rd as the spread of the Coronavirus peaked and central banks proved very aggressive. For instance, from March 23rd to April 20th, total assets of Federal Reserve banks rose $1.3 trillion, or $70 billion per trading day. Concurrently, the growth rate of global Coronavirus cases fell form 10-12% to 3-3.5% per day at present.


In the space of alternative strategies, Lyxor Peer Groups point to a solid performance of Event-Driven in April. Special situations and Merger Arbitrage outperformed, up 3.8 and 2.7%, respectively month-to-date (as of April 21st). Event-Driven strategies also outperformed in the last week of March, pointing to solid returns since the market bottomed. Meanwhile, Global Macro strategies underperformed, up +0.4% so far in April, on the back of the difficulties faced by Discretionary Macro strategies (+0.1%).


Below we discuss the reasons why Event-Driven outperformed and our views going forward. Although Special Situations strategies are quite heterogeneous, we note that on aggregate, their equity market beta stands in a range of 10 to 15% and remained stable during the turmoil. This contributes to explain why the strategy partially captured the market rebound lately. In terms of exposure to risk factors, it appears the strategy has been outright short quality stocks (which was costly in March) and slightly long low beta/ non-cyclical stocks (which was helpful). With regards to Merger Arbitrage, the strategy benefitted from a tightening of deal spreads in recent weeks, after a massive widening in the first half of March, which, in our view, was a source of opportunities.


Our stance on Event-Driven stays O/W. This is one of the few areas where we are adopting an opportunistic approach as we find the risk-reward is attractive. Our stance on both Merger Arbitrage and Special Situations stays at Overweight. Finally, although we do not formally express a view on distressed strategies, we think it has also regained appeal in current market conditions.

Associated Funds

Lyxor / Tiedemann Arbitrage Strategy Fund