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EPFR Fund Flows

Investigating the evolution of Hedge funds positioning European sectors and potential explanations during the recent crisis

Investigating the evolution of Hedge funds positioning European sectors and potential explanations during the recent crisis

Holding a short position in European equities was a very prescient – or lucky -- bet in March. Looking in detail at Figure-1, some were more fortunate than others in terms of the sectors they shorted.  

Topic Industry News

EPFR Fund Flows

Changes in Hedge fund Short positioning after the start of Covid-19 crisis

Exploring Hedge fund Short positioning in European Sectors before the market sell-off using Caretta Data

As we highlighted in the previous post, one of the few investment vehicles likely to profit from the recent COVID-19 rout of European asset markets are hedge funds with short positions. Analyzing data produced by Caretta Research, a surprising pattern has emerged up in the aggregate short positioning on European stocks. The total short positions, which one would expect to increase in this environment as earnings forecasts are being downgraded, is decreasing. The total short positions, as a percentage of total shares outstanding, has dropped from 4.5% on 20 February to 4.1% on 25 March. Moreover, out of eight sectors, seven saw a decrease in the shorted average total shares numbers during the last month.  

Topic Industry News

EPFR Fund Flows

Exploring Hedge fund Short positioning in European Sectors before the market sell-off using Caretta Data

Exploring Hedge fund Short positioning in European Sectors before the market sell-off using Caretta Data

Since the COVID-19 pandemic started accelerating in Italy in late February, European markets have tumbled. Almost all European stocks are in negative territory year-to-date irrespective of sector, industry, or country of origin. In terms of scale, the quarterly drop is the highest in 33 years, and the intensity of it is unusually high - more than 35% of the total market capitalization has been lost in only three weeks.  

Topic Industry News

IGM Credit, IGM FX and Rates

China Insight: Potential Scenario of Special Bond Supply

China Insight

The Politburo Meeting on 27 March hinted at a big stimulus package ahead. The meeting stated that macro policy loosening should be stepped up to boost domestic demand and achieve the "Six Stabilities" (stable employment, trade, financial markets, investment, foreign capital, and expectations). Specifically, the central government will issue a batch of special government bonds (SGB), and the local government special bond (LGB) quota will also be enlarged. In addition, the meeting called for accelerated issuance and use of local government special bonds, speeding up the preparation and construction of large and important infrastructure projects and better implementing the reduction of taxes and administration fees. We expect the government to raise the budgetary deficit to 3.5% of GDP from the previously 3.0% and lift the tax and administration fee target to CNY2.5tn from CNY2tn realized last year. Regarding off-budget items, we expect special local government bond issuance to rise to CNY3.5tn from CNY2.15tn in 2019. Meanwhile, the statement of the PBOC 1Q meeting on the same day also put a great priority on assisting a firm recovery of the real economy and pledged to increase support to SMEs and the private sector. PBOC wants to see the loan prime rate (LPR) play a more important role in lowering real funding costs.      

Topic Industry News

EPFR Fund Flows

Cash remains king as global economy limps into the second quarter

Global Navigator

Investors pumped another $194 billion into EPFR-tracked Money Market Funds during the final week of a first quarter that saw large swathes of the world locked down to prevent the spread of the COVID-19 virus, the price of oil fall 65%, the S & P 500 index fall 33% from its peak to its trough on March 23 and over six million Americans file for unemployment in a single week. While Money Market Funds absorbed record setting inflows, Equity Funds saw over $50 billion flow out during the quarter and Bond Funds set weekly and monthly outflow records on their way to their biggest quarterly outflow since 3Q13.

Topic Industry News

iMoneyNet - Money Market Fund Analysis

This week's issue of Money Fund Report

This week's issue of Money Fund Report

iMoneyNet was among the first to report that a consortium of business associations and asset managers have appealed to the U.S. Federal Reserve to include a broader range of commercial paper issuers – specifically those designated as T2 – in the Fed’s new Commercial Paper Funding Facility. In a March 31 letter to Fed Chair Jerome Powell and reported in iMoneyNet’s Money Fund Report on Wednesday, the consortium members asserted that T2 CP issuers are entirely “investment grade” and present a default rate only “infinitesimally” greater than their T1-rated peers.

Topic Industry News

IGM Credit, IGM FX and Rates

China Insight: Bond Inflows Pick Up Amid Weak Economy

China Insight

As Emerging Markets go into recession, EM policymakers have rapidly deployed a broad range of support measures with more to come, but it remains to be seen how effective these will be in mitigating the EM growth hit. As far as China is concerned, negative GDP growth in Q1 looks unavoidable. The most pessimistic estimate in the street is -9%. For the full-year GDP growth, the revised estimates in the street fall between +1% and +4%. In light of the gloomy economic outlook, Beijing definitely will step up stimulus. Now a cut in the benchmark deposit rate is on the cards, which could be a more meaningful means to boost retail consumption. With interest rates trending downward, onshore government bonds and policy bank bonds have kept rallying recently on the back of strong buy-and-hold demand (chart 1). The latest data suggests the China bond market saw USD11bn of net inflows from foreign investors in February, up from only USD2bn in January (chart 2). Among the paper which is already or being included in the major global government bond indices, policy bank bonds (PBBs) registered a bigger increase in foreign investors' portfolios than China Government Bonds (CGBs). Of the USD11bn of net inflows in February, USD5bn was taken by PBBs, USD4bn by CGBs with the remainder by negotiable certificates of deposit (NCDs) and medium-term notes (MTNs).      

Topic Industry News

EPFR Fund Flows

Flight to cash continues unabated going into final week of March

Global Navigator

EPFR-tracked US Money Market Funds absorbed a record-setting $254 billion during the week ending March 25 as panicked investors liquidated their holdings in both Equity and Bond Funds and moved as near to cash as they could reasonably get. With the number of confirmed cases of COVID-19 exceeding 500,000 globally, redemptions from all Equity Funds hit a 68-week high while Bond Funds followed up last week’s record outflow by posting an even bigger number.

Topic Industry News