Lyxor: Hedge Fund Index Up 0.4% as Macro Funds Shine

Nov 1 2016 | 5:48pm ET

Increasing risk appetite, anchored on improving sentiment and, at least until Friday, a reasonably certain outcome to the U.S. presidential election helped support hedge funds during the week ended October 25, according to the latest edition of Lxyor Asset Management’s Weekly Brief

The Lyxor Hedge Fund Index gained 0.4%, outperforming an equity/ bond balanced portfolio, supported by Global Macro, Fixed Income, Credit Arbitrage and CTA strategies, the company said. 

All but one of Lyxor’s sub-strategies were positive for the period, led by Global Macro’s +1.2% advance. Elsewhere, Fixed Income gained +0.8% and CTAs +0.6%. Long/Short Equity was relatively flat at +0.1%. The only strategy segment negative for the period was Event Driven, which lost -0.3%.

After languishing for most of this year, Global Macro had a fantastic October, gaining 6.6% and nearly erasing the segment’s YTD losses. CTAs, conversely, lost -3.3% for the month, although last week was positive. 

Despite the weak October, CTAs neutral position on bond duration may allow them to better navigate the rising yield environment, Lyxor said. Short EUR and GBP vs. USD positions contributed to performance in a similar fashion than it did for Macro managers.

With regards to Event-Driven, it was surprising to see the strategy in the red when 10-year Treasury yields jump 25 bps in a month, as it has historically been negatively correlated to bond yields. 

Going forward, Lyxor is maintaining its slight overweight stance on Event-Driven, with a continued preference for merger arbitrage players. “We believe that the strategy can cope with higher bond yields as its net exposure to both equities and bonds has continued to decrease lately,” said Philippe Ferreira, Lyxor senior strategist. “Managers have thus ample room to deploy capital as opportunities arise. Ahead of U.S. elections, most Event Driven managers have stayed cautious and will wait for greater political clarity before deploying their capital. The strategy is thus likely to be resilient if equity volatility continues to rise, which would lead to wider deal spreads and open the door for cash deployment.”

The strong U.S. earnings season is expected to support directional hedge funds strategies, Lyxor said. With half of the S&P 500 companies reporting, more than 75% beat forecasts, and the better-than-expected outcomes have contributed towards stabilizing equity markets. The strong season should support Event Driven and L/S equity strategies thanks to greater stock returns differentiation, Lxyor predicts, while risk assets may have otherwise experienced downward pressures from higher bond yields.

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. Participating funds represent $7.2 billion of assets under management and replicating $220 billion in AUM as of August 31, 2016.

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