Lyxor: Hedge Funds Flat As Reflation Trade Put on Hold

Dec 6 2016 | 8:10pm ET

Hedge funds largely treaded water last week as markets paused the reflation trade ahead of OPEC’s meeting and the Italian constitutional referendum, according to the latest edition of Lyxor Asset Management’s Weekly Brief.

Lyxor’s closely watched Hedge Fund Index was basically flat for the week ending November 29, the company said, dipping 0.1%. CTAs reversed a persistent decline in recent weeks to gain +0.5% on profitable commodity and currency trades, while L/S Equity funds were up +0.2% helped by Long-only and Variable Bias segments. Both Fixed Income Arbitrage and Event Driven funds showed little change, while Global Macro underperformed significantly, losing -0.7% due to long USD and short European fixed income positions, Lyxor said. 

For the year to date, Lyxor’s benchmark index is now down -1.7% with only a few weeks left in the year, while the positive showing from CTAs last week trimmed the segment’s YTD loss to -5.4%. On the plus side, Lyxor’s Event Driven Index has the best showing so far this year, up 1.1%. Interestingly, despite the strong U.S. equity market rally since the election, Lyxor’s L/S Equity Broad Index remains down 4% on the year. 

“Noticeably, CTAs and Macro returns have been inversely correlated this year,” observed Lyxor senior strategist Philippe Ferreira. “We still favor the latter in the current backdrop, [and note] CTAs’ exposures shifted dramatically over the recent weeks. They cut the bulk of their bond exposure, now short U.S. and moderately long European bonds. They are long Equities, short Energy and long Metals. As for FX, they focus on short Euro & GBP. 

“By contrast, Macro managers are all short U.S. equities, while being moderately long in Europe and Japan. They are long U.S. and short European bonds, and long Energy futures,” Ferreira added. 

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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