Shorting the pound has boosted hedge fund performance over the past week, following speculation that the UK is heading for a so-called ‘hard’ Brexit.

Reports that UK Prime Minister Theresa May is pursuing a ‘hard’ Brexit — where control of immigration is prioritised over access to the European single market – has led to a plunging pound of late.

The currency moves and added uncertainty has “strongly supported” global macro managers (hedge funds with strategies based on overall economic and political views) who had not bought an 'easy' Brexit.

Lyxor’s hedge fund index was up 0.8% last week, with global macro funds outperforming (+3.3%).  “Their short position on the pound was a major boost,” said Lyxor’s Cross Asset Research team.

Meanwhile, investors continued to prepare for a December Fed hike.

Markets are also waiting for a confirmation that the ECB, BoJ and BoE have actually shifted to a more hawkish stance and pushed back their negative interest rate policy.

“A less dovish stance from developed markets’ central banks would be a strong positive for hedge funds,” Lyxor’s team adds. 

“Their alpha generation actually suffered from Quantitative easing and the prevalence of speculative drivers.

“With that perspective in mind, we are prepared to reweight more firmly the whole global macro group.”

Tough week for CTAs, L/S equity and event driven funds

Lyxor’s stats show CTAs endured a difficult week. Funds’ positioning was challenged by positive correlation between bonds and equities when both declined at the same time.

It was also painful week for long/short equity funds as equity markets pulled back on both sides of the Atlantic while Asian markets outperformed.

Low exposure to winning sectors, namely energy and banks, prevented managers from some positive performance.

Elsewhere, event driven managers gave back some of the previous week’s gains amid increased volatility and negative headwinds.

On the merger arbitrage front, Syngenta/ChemChina spreads widened on the back of investors’ concerns over the deal’s financing.

LinkedIn/Microsoft took a small step back as Salesforce, a failed bidder for LinkedIn, complained in an attempt to influence EU’s antitrust review.

Regulators in the US, Canada and Brazil have approved the deal and most managers expect the EU to approve it as well, which would pave the way for the transaction to close by year-end.