21st Apr 2020 - 11:17am

Mixed outlook for L/S equity and short-selling, says Lyxor

Submitted 21/04/2020 - 11:17am

Lyxor’s L/S Equity Neutral peer group was down -2.8 per cent year-to-date, hurt by extreme trading conditions and the constituents’ average market beta of 20 per cent, according to the latest Weekly Brief by the company's Cross Asset Research team.

Lyxo says the environment has been challenging for the strategy amid extreme stock volatility and unsettling heavy systematic trading volumes.

Despite these challenging market conditions though, L/S Neutral strategies have benefitted from mitigating factors according to Lyxor, recording positive contributions from their short books, although short-selling has less profitable than in previous bear markets.

Lyxor writes: "Shorting has not been an easy ride in a market which plunged at record speed, with the implementation of multiple short bans, and the surging cost of protection. Increased algorithm trading volumes and an unprecedented volatility required careful risk management to implement shorts. The rapid short- squeeze by mid-March also eroded short returns. On the bright side, short stock-picking has been easier, with well identified losers and winners from the outbreak.

"Short selling conditions are now normalising, with greater room for fundamentals, especially as the earning season gains attention. However, given still light investors’ positioning and intensifying QE, short sellers remain vulnerable to a continued squeeze."

Author Profile Tags Results & performance Funds