Lyxor: Broad Hedge Fund Index Down -1.41% in September, CTAs Shine

Oct 13 2015 | 2:46pm ET

Hedge funds are bleeding, but they’re doing so at a slower pace than the broader market, according to Lyxor Asset Management’s Alternative Investment Industry Barometer for October 2015. 

The Lyxor Hedge Fund Index was down -1.41% in September, with only three out of Lyxor’s eleven sub-indices ending the month in positive territory. Echoing other hedge fund industry reference metrics, CTAs were the stars of the month – Lyxor’s two CTA indices, Long Term Index and Short Term Index, gained +3.97% and +2.30%, respectively. The Lyxor L/S Equity Market Neutral Index also notched a minor gain of +0.37%.

In contrast, L/S Equity Long Bias funds remained under pressure, with the index falling -2.19%. The month was also challenging for Merger Arbitrage strategies, with Lyxor’s index dropping -3.60%, as well as for Fixed Income Arbitrage (-2.35%) and Global Macro (-1.11%). The worst decline was seen in Lyxor’s Special Situations Index, which fell -5.28% in September.

Year to date, Lyxor’s Hedge Fund Index is down -1.01%. On the downside, Special Situations has lost 9.30% so far this year, while on the upside L/S Equity Variable Bias funds are ahead 4.97%.

Lyxor noted that the current recovery process is proving laborious. Continued soft macro releases, several micro turbulences and suggestions the Fed is concerned about global growth drove markets to re-test the end-of-August lows during September.  L/S Equity Long bias funds and Event Driven funds were yet again the main victims. Conversely, CTAs, Global Macro and L/S Equity funds, with lower or variable bias, have been more successful in navigating the challenges.

Meanwhile, event-driven funds were again the main losers, as they were hit by meltdown in the healthcare sector during the last two weeks. The sector is strongly represented in Merger Arb and Special Situation funds, so declines in this one sector hit whole space hard, Lyxor noted.

Global Macro, on the other hand, largely avoided a difficult period by focusing on FX and interest rates. “With limited exposure to commodities and shrinking allocation to equities (from 15% to less than 10% in net exposure), Global Macro dodged most of the September volatility,” noted Lyxor. “The bulk of their directional exposure was in the FX space. Their long in USD vs. EUR, GBP and CAD, produced marginally positive returns. Their market timing on rates added gains. They rapidly rotated their bond exposures back to the US, as it became probable that the Fed’s normalization process would be postponed.”

Going forward, Lyxor’s senior cross-asset strategist, Jean-Baptiste Berthon, added, “Quantitative easing, combined with tighter regulation, is growingly questioned. The former is re-leveraging, the latter is trapping liquidity within banks. Both are increasing market risks. With few obvious growth gears in sight, we expect moderate and riskier asset returns.”

Lyxor’s Hedge Fund Index family leverages the breadth and diversification of the Lyxor Managed Account Platform, and seeks to be representative of the hedge fund industry. The firm’s 15 indices are investable, asset-weighted measures designed to offer investors straightforward access to hedge fund performance. 

Lyxor Asset Management Group was founded in 1998 and is composed of two fully owned subsidiaries of Societe Generale Group. It manages and advises on some $133.6 billion of assets.

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