Lyxor: Event-Driven Hedge Funds Outperform as Markets Rebound

Feb 23 2016 | 12:49am ET

Hedge funds eked out positive performance last week on the strength of Event-driven managers but results were widely dispersed, according to Lyxor Asset Management’s latest weekly briefing. 

Lyxor’s Hedge Fund Index gained 0.1% for the week ended February 16, leaving it down -1.6% for the month to date and down -2.9% so far this year. Despite the thin gain, Lyxor noted that more than half the managers on its platform were in the green for the week. 

Event Driven outperformed (+0.8%) as both Special Situations and Merger Arbitrage funds captured the market rebound. Almost 70% of the Event Driven funds in our sample were up, with a Merger Arbitrage outperforming with a + 6.4% gain, the company noted. 

The market recovery also fuelled long bias long/short equity funds, which gained +1.3%, while the defensive positioning of less directional funds was a drag on performance.

This reflects improvements over three major concerns, noted Lyxor. 1) the oil supply glut could be addressed as large oil producers announced their intent to freeze production; 2) Chinese authorities seem to be back in the game, raising hopes of a controlled landing; and, finally 3) the U.S. macro news flow suggested that the industrial recession may have past the worst. In the hedge fund space, this has translated into an outperformance of Event Driven and L/S Equity long bias, and an underperformance of Global Macro.

“Event Driven and L/S Equity are the most likely to benefit if the rally proves sustainable, which we doubt at this stage,” commented Philippe Ferreira, senior strategist for Lyxor. “After having cut their risk exposure for several months, most managers remain cautious. They question the longevity of the significant rally of value stocks.”

CTAs were flat for the period after a very strong start to the month. The performance largely confirms the ability of many CTAs to navigate market turmoil, given the reversals in equity, fixed income and commodities trends recently.

Lyxor’s Weekly Brief aims to identify trends in hedge fund investing while leveraging the proprietary information accessible through the company’s managed account platform.

Lyxor’s Hedge Fund indices are based on the universe of funds available on the platform determined on a monthly basis to be eligible for inclusion. Approximately 70 funds participate, representing $8.3 billion of assets under management and replicating $250 billion in AUM.

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