The sharp reversal in fortunes for risk assets after their lull in December is continuing throughout February.

However, Paris-based asset manager Lyxor is worried about CTAs in the hedge fund space. It said in a statement that “CTAs have dramatically increased their long fixed income positions over the last quarter and we are concerned about the impact a bond trend reversal might have on their performance going forward”.

CTAs have faced renewed pressure since the start of 2019 on the back of their short equity positioning at  time when these assets have rallied.

Data from Lyxor also suggests underperformance in long/short hedge fund strategies for similar reasons, a sustained equities rally.

However, as Fundeye  has previously reported, merger arbitrage and fixed income strategies continue to outperform. Lyxor said: “We prefer these strategies from a strategic standpoint. Their low volatility in returns, consistent alpha generation and low equity beta are strong advantages, in our view.”

Lyxor also found that the ‘investors love for the US dollar remains intact’. This comes despite the softer stance adopted by the Federal Reserve and the recent loss of momentum of the Dollar index. Data from the US Commodities Trading Commission suggests the long dollar trade is well alive.

The asset ,manager stated that due to mounting European challenges, such as growth deceleration and looming Brexit deadlines, these have translated into a higher aversion towards the common currency globally.

Furthermore, at the end of last week, Benoît Coeuré, an executive board member of the ECB, sent dovish monetary signals which may reinforce investors’ long U.S. Dollar bias.