Has the selloff left scars on stock-pickers &trend-followers?

By February 27, 2018 05:14

Has the selloff left scars on stock-pickers &trend-followers?

The Weekly Brief

Hedge funds strongly recovered from the selloff, with only two exceptions: i) the fixed income funds, flat this week, still isolated from the epicenter, and ii) neutral equity funds, still suffering from sector and factor rotations. This week, we checked if the selloff altered the stock-pickers and trend-followers environments. Stock dispersion soared a few days before the selloff, but we expect a rapid mean reversion. Historically, higher dispersion following spikes of volatility only lasted when coinciding with a major macro shift. Managers will not enjoy the extra arbitrage potential for long. By contrast, we expect that the current stock re-correlation will last, with a common set of drivers likely to stay on the radar (including rates, inflation, dollar). Distracting markets from companies’ fundamentals, it will make bottom-up selection more challenging. The cold shower on the U.S. earnings season was telling: strong earnings and revenues were disregarded, while returns after EPS announcements largely resulted from broader market moves. 

By February 27, 2018 05:14


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