Lyxor: Hedge Fund Index Treads Water As Macro Funds, CTAs Diverge

Dec 13 2016 | 12:25am ET

Hedge funds continued to mark time last week as equity markets churned higher on thinning breadth and bonds dragged lower ahead of the Fed’s meeting this week, according the latest edition of Lyxor Asset Management’s Weekly Brief.

The company’s Lyxor Hedge Fund Index was essentially flat, gaining 0.1% for the week ended December 6. The best performer was Lyxor’s Global Macro Index, which gained 0.5% during the period on long energy positions that played out positively following OPEC’s output agreement as well as long European equity positions. 

Lyxor’s Event Driven and L/S Equity indexes were also up marginally, driven respectively Long Bias and Special Situations funds, respectively. On the flip side, CTAs were down again, losing 1.5% for the week and adding to recent losses. Short allocations to energy were the main performance detractors, Lyxor wrote.

For the year to date, Lyxor’s Hedge Fund Index is down -1.5%. CTAs, meanwhile, have had a very tough go of it, especially since the election; the Lyxor CTA Broad Index is down -8.1% so far in the fourth quarter and -6.7% for the year, easily the worst-performing sub-strategy in Lyxor’s index family. On the flip side, Lyxor’s Event-driven Broad Index is up the most YTD, at +1.3%, while its Global Macro Broad Index has come alive in the fourth quarter, gaining 5.6%.

“Since the beginning of the fourth quarter, the divergence in returns between CTAs and Global Macro is surprising,” said Lyxor senior strategist Philippe Ferreira. “We cannot recall a worse bout of underperformance of CTAs vs. Global Macro in any quarter over the past 15 years. 

“Going forward, we believe it makes sense to start considering a contrarian strategy,” he added. “During the last few months, CTAs have reshuffled portfolios significantly, cutting back their long fixed income allocations to close to zero and re-weighting equities. We believe that the post-election reflation trade may have legs, and as such, the underperformance of CTAs may soon come to an end.”

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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