Despite the escalation of trade tensions during the third quarter, economic activity has remained quite resilient. Macro data releases even managed to beat expectations in the U.S. and in Japan, leading to a sudden rise in bond yields over the course of September.

Progress in trade talks between the U.S. and China and in Brexit negotiations knocked down safe assets last week. Bond yields rose in most developed countries and gold prices fell, as the stance on both thorny issues reversed and turned positive.

Volatility regimes are decisive for most investment approaches, particularly hedge funds. For both top down players (CTAs, Global Macro, FI Sovereign Arb.) and bottom-up strategies (L/S Equity, Event Driven, Credit Arb.), volatility deeply influence their universe and the trendiness of opportunities.

Going forward, our stance remains defensive on equities, in particular on European, Japanese and EM markets (UW). In the space of alternative strategies, we prefer Market Neutral L/S vs. Directional L/S, despite the fact that the latter has adopted a cautious stance in portfolios and was quite resilient in August.

Despite massive headwinds from trade tensions, Brexit deadlock and the manufacturing recession, asset prices have been incredibly buoyant so far this year. But as we head into Q4 2019, the sky starts to fill with clouds. We believe the balance of risks is highly asymmetric and turn more risk adverse, with hedge funds as a possible way to navigate the uncertainty looming on the horizon.