Lyxor: High Dispersion of Manager Returns During Market Panic

Aug 31 2015 | 6:36pm ET

The deflation and growth scares morphed into a vicious cycle last week, according to Lyxor Asset Management’s latest weekly briefing covering the period 18 August to 25 August – i.e. during the worst of the recent market volatility.

Lyxor observed multiple trading anomalies, especially on the 24th, suggesting that systematic and algorithmic trading amplified the sell-off.

The Lyxor Hedge Fund Index fell -3.5% during the period. All five of the measure’s sub-indices were down, the latest in a string of hedge fund indices to reflect the mid-August carnage.

Lyxor noted that Event-driven and Macro funds were particularly hard hit, dropping -4% and -4.1%, respectively. The best performer of the five, Fixed Income Broad, dropped -1.4%, supported by a milder pressure on credit-related instruments. CTAs lost -2.5% and Long/Short equity lost 3.8%.

In comparison, global equities fell by 9%, energy spots by another 10% and base metals lost 4%.

The company reported high dispersion in managers’ returns, particularly among global macro funds, with losses in some heavy-weight funds.

However, Lyxor also noted that during the period, technical indicators and market positioning reached deeply oversold levels, and with high trading volumes. Shorting became very expensive, accompanied by a timid rebound in nondefensive assets – a feature usually associated with capitulation patterns.

“The bottoming process has already begun, but the sentiment remains febrile”, noted Lyxor’s Philippe Ferreira. “On the one hand, the apparent disconnection of this sell-off with macro data is opening bargain opportunities. On the other, investors are pondering whether a more fundamental change is being priced in, which would suggest a more bearish phase for risky assets.”

Lyxor observed a bevy of current concerns confronting managers, including discerning the true magnitude of the Chinese slowdown, the risk of an EM FX crisis, resiliency of global growth to another round of deflation, uncertainty around the Fed’s policy normalization, and the ability of monetary authorities to deal with any of the above. 

The Lyxor Hedge Fund indices are based on the universe of funds available on the Lyxor Managed Account Platform determined on a monthly basis to be eligible for inclusion. Approximately 66 funds participate on the platform, representing $8 billion of assets under management and replicating $200 billion in AUM.

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