Lyxor: Hedge Funds Continue to Make Progress as Risk-On Returns

Apr 25 2016 | 10:06pm ET

Hedge funds gained slightly last week as the climate for risk assets continued to improve into the second quarter, according to according to Lyxor Asset Management’s latest weekly briefing.

The Lyxor Hedge Fund Index rose +0.3% for the week ended April 19, led by a gain of 0.7% in the Event Driven Broad Index. The Special Situations subcategory gained +1.6%, outperforming on the back of exposures to financials, consumer non cyclical and energy, while merger funds progressed on some deal spread tightening.

The Lyxor Fixed Income Broad Index gained 0.5% amid bond spread tightening, rising returns and strong new issue volumes in both Europe and the U.S., while CTAs posted slight negative returns of -0.3% on mild losses in bonds and in JPY offset by equities and commodity FX. 

Lyxor’s Global Macro Index gained 0.6% on strong performance among global equity indices. L/S equity managers, meanwhile, ended last week flat. However, the result hides broad dispersion in returns across managers, noted Lyxor in the report. U.S. focused and most directional managers outperformed, while the lowest net and highest gross exposed funds suffered from style rotations. 

For the year to date, the Lyor Hedge Fund Index remains down -2.5%. The company’s CTA Broad Index remains in the lead among substrategies, up +1.5%, while the Lyxor L/S Equity Index trails the group at -3.6% YTD. 

Chinese data are evidencing that the monetary and fiscal stimuli are passing through in the real economy, Lyxor observed, while the EPS season is starting better than feared and the dovish Fed is keeping pressure on the dollar and capping any higher yields attempts. Taken together, Lyxor wrote, they were all good ingredients for greater risk appetite, or rather, for lesser risk aversion.

“Subdued trading volumes in most regions emphasized a continued reluctance to join in the rally,” wrote Lyxor senior strategist Philippe Ferreira in the report. “Investors remain confused, sorting out whether they gave in to unjustified fears in January, or whether they avoided a vicious circle, courtesy of central banks, weaker USD, and recovering oil prices. 

“Forced in the rally, investors remain on the cautious side, which could give ammunition for further market inflows,” he added. “However, unlocking them will likely require more fundamental evidence [about] the Fed’s timeline, the sustainability of the pick-up in Chinese activity, the resilience of U.S. consumers and EPS, the credit impulse in Europe, and prospect for further BoJ easing.”

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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