The collapse in global cross-asset correlations should provide a better backdrop for macro trading... As our CrossAsset Strategy team recently noted, their Global Cross-Asset Correlation Index (which looks at correlations across both crossasset and cross-regional returns) has collapsed, falling from close to an all-time high in October, down to a 14Y low in January. Given that the relative performance of global macro hedge funds has historically been closely linked with the degree of correlation between global asset markets (as illustrated below), the decline in correlations suggests a better backdrop for macro trading than what we’ve seen over the last few years.
. 2016 was also a tough year for European equity investors, and saw a record low proportion of UK long-only equity funds outperforming the UK market. However, as discussed in our 2017 outlook, we believe that 2017 will prove less onerous for equity investors due to an improving earnings backdrop, less extreme investor positioning and also the potential for stock specific factors to rise in importance. In this regard it is noteworthy that the 3M realised intra-market correlation of the constituents of the Euro STOXX 50 index, has declined from a high of 72% last summer, down to an all-time low of just 27%, suggesting an easier environment for stock-picking.