When market visibility diminishes, there is a strong temptation to seek refuge in cash or certain bond strategies. However, there is another path: that of absolute return.
Long/short market-neutral equity strategies offer a rational alternative to traditional approaches, capitalizing on valuation dispersion rather than index trends.
At Exane Asset Management, this decoupling-focused philosophy is no passing fad: it has been at the core of our business for nearly twenty-five years.
Understanding the “market neutral” approach
The promise of a market-neutral strategy may seem abstract. The idea, however, is simple: it involves betting both on companies deemed undervalued (long positions) and on others considered overvalued or poorly positioned (short or hedging positions), so that general market movements have little impact on the fund’s performance.
Returns then come not from the overall rise or fall of stocks, but from the manager’s ability to distinguish winners from losers within the same universe.
This approach is based on a strong conviction: valuation dispersion creates arbitrage opportunities at all times for those who know how to spot them.
“Volatility and dispersion generally favor long/short management. For each sector, our managers seek to identify the winning and losing companies.”—
Eric Lauri, Co-Chief Investment Officer, Exane AM
A long history of absolute return expertise
Exane Asset Management is one of Europe’s pioneers in absolute return investing. Since 2001, the firm has specialized in long/short equity strategies aimed at achieving structural decoupling from traditional asset classes.
Its two flagship strategies, Exane Pleiade (launched in 2006) and Exane Overdrive (2013), illustrate this approach with complementary profiles: the former operates within a controlled risk framework with a particular focus on capital preservation, while the latter offers stronger return potential while remaining market-neutral.
These fully liquid UCITS strategies are driven by the same performance engine: in-depth fundamental analysis conducted by a team of sector-specialized portfolio managers (healthcare, industrials, technology, consumer goods, etc.). Each manager-analyst identifies the drivers of value creation or destruction at the microeconomic level, independent of macroeconomic noise.
This approach yields a more consistent risk/return profile: Exane Pleiade’s average volatility remains below 3%, while Overdrive has delivered an annualized return of approximately 5.7% since its inception, with a risk three times lower than that of the equity markets.
Why these strategies are returning to the forefront
Long neglected by a segment of the French market, alternative solutions are now attracting growing interest. After several years dominated by liquidity flows and macroeconomic trends, the divergence among companies is widening again, restoring the relevance of stock-picking.
“Through their ability to generate returns uncorrelated with the markets, market-neutral long/short equity strategies are valuable tools for diversification and optimization of our clients’ asset allocations.”
— Eric Lauri, Deputy CEO, Exane AM
Another opportunity: rising interest rates. In a market-neutral long/short equity strategy, investors’ capital is not directly exposed—the amounts bought and sold offset each other. Unused cash can therefore be invested in low-risk money market instruments, generating additional returns.
Since 2023, this simple carry effect has bolstered the contribution to the funds’ overall performance: a dual source of value creation, combining alpha generation and cash returns.
A response to the quest for diversification
Both institutional and private investors are rediscovering the structural appeal of these approaches. Not to “win all the time,” but to win differently: independently of economic cycles, with a stable risk-return profile and controlled volatility.
Such a strategy naturally fits within a balanced allocation:
- as a complement to the equity portfolio, to smooth volatility;
- or as an alternative to credit and fixed-income products, when real rates are no longer sufficient to protect capital.
Beyond the hard numbers, it is the behavioral stability of these funds that is appealing. Their arbitrage approach reduces the psychological jitters associated with the markets and fosters a long-term investment perspective.
Toward conviction-based management, without overconfidence
Markets evolve, cycles change, but discipline remains. At Exane AM, risk management is not an afterthought: it is a corporate culture, built on nearly twenty-five years of experience in European equity markets.
The model is based on the complementary profiles of the management team, rigorous processes, and constant monitoring to adapt portfolios to market realities.
In an environment that remains uncertain, Exane AM’s strength lies in its ability to deliver transparent and controlled performance, independent of market trends, based on rigorous fundamental analysis and proven risk management. Its liquid and transparent UCITS strategies offer investors a sustainable source of alpha and genuine diversification for their allocations. Perhaps a way to reconcile investors with the idea that, in finance, peace of mind also has value.
