Lyxor: Hedge Fund Index Up As New Market Regime Takes Shape Post-Election

Nov 29 2016 | 3:19pm ET

Hedge funds enjoyed broad-based returns last week as equity, bond and currency assets remained largely in their respective lanes as financial markets continue adapting to Donald Trump’s election win, according to the latest edition of Lxyor Asset Management’s Weekly Brief.

The Lyxor Hedge Fund Index gained 0.7% for the week through November 22, with all sub-strategies except one ending the period on a positive note. Event Driven led the pack, gaining 0.9% and supported by positive returns in both Merger Arbitrage and Special Situations segments, while Global Macro and L/S Equity gained ground, up 0.8% and 0.7% respectively. Fixed Income managers experienced more modest gains of 0.2%, although any positive return in light of the ongoing bond sell-off is testament to management skill. CTAs ended the week flat, Lyxor said. 

For the year to date, Lyxor’s benchmark index remains down -1.6%, while CTAs have fared the worst among sub-strategies with a -5.8% YTD return. On the positive side, Lyxor’s Event Driven Broad Index leads the group with a 1% gain for the year so far. Despite the strong equity market rallies since the election, the year-to-date tally for Lyxor’s Long/Short Broad Index remains -4.7%.

The current environment is supportive for hedge funds, Lyxor noted. Most strategies delivered positive returns last week as risk assets moved higher as part of the new market regime that has started to take shape after Trump’s election. 

That new regime has prompted some changes in Lyxor’s investment recommendations. “We have downgraded Short-Term CTAs to make room for an upgrade in L/S Equity Long Bias,” said Philippe Ferreira, Lyxor senior strategist. “We now keep both Short and Long-Term CTAs at neutral.”

“Meanwhile, we find Market Neutral L/S Equity to be less appealing, while the opportunity set for Special Situations has improved,” he added. “The likelihood that U.S. corporates will repatriate their cash held overseas under the new administration may translate into shareholder friendly policies (dividend distribution or share buybacks) or more mergers and acquisitions. This creates opportunities for Special Situations managers, which we have upgraded [to] slight overweight.”

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 $7.5 billion of assets under management and replicating $220 billion in AUM as of October 31, 2016.

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