Lyxor: Hedge Funds Gain 0.6% in March but Close Q1 Down -1.9%

Apr 4 2016 | 2:59pm ET

Hedge funds did well in the month of March as the broader market rally ground to a halt, although the outperformance was not enough to reverse a solid drawdown for the first quarter, according to the latest Weekly Brief from Lyxor Asset Management.

Hedge funds were relatively flat in the last week of the month, with Lyxor’s Hedge Fund Index gaining 0.2% through March 29. For the month, the index gained 0.6% with Fixed Income Arbitrage and Event Driven strategies outperforming (up 1.6% and 1.4%, respectively) and CTA’s getting hammered with a -3.3% return. 

Lyxor’s research suggests that defensive positioning at CTAs, i.e. long fixed income, neutral equities, short energy and long Japanese yen, suffered during the market’s rebound from risk off to risk on.

For the full first quarter, hedge funds suffered a nearly 2% drawdown, according to the Lyxor index. Across hedge fund strategies followed by the firm, CTAs and Merger Arbitrage have been the only segments of the industry being able to post returns in positive territory in Q1. Indeed, year-to-date, CTAs remain in the lead, with the Lyxor CTA Broad Index leading the pack with a 1.1% gain generated mostly during the risk-off period earlier in the year.

Conversely, the firm’s Long/Short Equity Broad Index is nursing a -3% YTD return.

Despite criticism of hedge funds in the current environment, Lyxor points out that the industry’s performance has to be viewed in relative terms.

“Hedge funds are down by 5% over the last twelve months according to our measure, but the volatility of their returns is divided by three compared to equities,” said Philippe Ferreira, Lyxor Senior Strategist. “The annualized volatility of the Lyxor Hedge Fund index is 5% over the last twelve months, compared to 15% for the MSCI World Index.” 

“As a result, on a risk-adjusted basis, hedge funds have fared much better than risk assets both in Q1 and over the last twelve months,” he added. Indeed, hedge funds have outperformed risk assets in both the first quarter and over the trailing 12-month period, Lyxor’s research shows.

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 62 funds participate, representing $7.9 billion of assets under management and replicating $241 billion in AUM.

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