Lyxor: Hedge Fund Index Dips 0.1% As Yields Rise

Jul 3 2017 | 7:49pm ET

Hedge fund returns were widely dispersed last week as rising bond yields and falling energy prices boosted fixed income managers but hammered CTAs and long/short equity funds.

The company’s Lyxor Hedge Fund Index lost -0.1% for the week through June 27, Lyxor said in its latest Weekly Brief, bringing the measure’s YTD return to flat. 

CTAs were impacted negatively by trend reversals across the fixed income and energy commodity spaces, Lyxor said, sending its CTA Broad Index down -0.9%. Meanwhile, 

L/S equity funds also underperformed, down -0.5% for the week, on the back of the poor performance of market neutral funds, a strategy that Lyxor recently downgraded to underweight. The two measures are down -5.5% and +1.9% for the year to date. 

Lyxor’s Fixed Income Broad Index gained +0.6%, pushing its YTD return to +3.4%, while event-driven managers continue to outperform on a year-to-date basis, up 5.4%.

“From a top down perspective, we maintain an underweight stance on CTAs,” said Lyxor senior strategist Philippe Ferreira in the research note. “In our view, the trend following environment remains unbalanced and too reliant on equity markets.”

“At the other end of the spectrum, fixed income arbitrage outperformed and Event-Driven was fairly resilient last week. For the full month of June, both strategies outperformed. In the recent past, we have expressed on several occasions our strong conviction on Fixed Income Arbitrage. 

“This is a strategy that performs well when bond yields and implied interest rate volatility rise,” he added. “Fixed income arbitrage is thus very attractive to diversify long only fixed income portfolios. We reiterate our overweight stance on the strategy.” 

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 $12 billion of assets under management and replicating $220 billion in AUM as of May 31, 2017.

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