The emerging market forex carry trade, which takes advantage of the difference in interest rate spreads between a currency pair is back, according the France-based asset manager Lyxor.

The reasoning for the return of this popular trading strategy include the availability of a Covid-19 vaccine and the looming normalization in economic activity prevents investors from being too defensive. The firm said in this context, alternative strategies that can bring both performance and diversification are attractive.

According to research carried out by Lyxor, current positions from global macro strategies on emerging market forex appear to be backed by fundamental analysis, not a systematic risk premia approach.

The firm’s stance on global macro strategies stands at overweight, with a preference for discretionary and emerging market strategies. In a context where Lyxor are more comfortable with the beta exposure of special situation strategies, the strategy was upgraded to pverweight last month

Lyxor has upgraded Special Situations to overweight at the expense of hedge fund strategies such as merger arbitrage in event-driven and downgraded fixed income arbitrage to underweight to upgrade directional long/short to overwight.

The firm said: “The next 12 months remain challenging for corporate earnings as Covid-19 headwinds will continue to bite in the first half of the year.”