Lyxor: Hedge Fund Index Broadly Flat Despite Steep CTA Slide

Jul 11 2017 | 12:00am ET

Hedge funds were essentially flat again last week as positive results from macro funds were outweighed by heavy losses by CTAs stung by countertrend moves in the bond and commodity markets. 

The company’s Lyxor Hedge Fund Index was down -0.1% for the week through July 4, Lyxor said in its latest Weekly Brief. For the year to date, Lyxor’s metric is now down -0.1%.

The repricing of monetary policy normalization continued during the week, with G3 rates still heading north, Lyxor said in the research note. Financials and dollar assets continued to outperform tech sectors, bond proxies and gold. While concerned by stalling inflation progresses, central banks are cautiously preparing markets for an unwinding of quantitative easing. 

CTAs have been hardest hit by this scenario. Weakness in the dollar, spiking yields, rebounding oil prices have hit nearly all their buckets, resulting in a -3.1% drop for the week and a -5.2% loss YTD.  

Elsewhere, macro funds gained +0.5% as their positioning in long European equities and bonds and hedged though a short EUR began to play in their favor. Lyxor’s Macro Broad Index is down -2.6% YTD.

Lyxor’s latest missive also contained the company’s third-quarter hedge fund outlook. “Most micro strategies benefitted from an improving alpha environment since mid-2016,” said Lyxor senior strategist Philippe Ferreira. “We expect more demanding conditions going forward. We [would] focus on deep fundamental L/S Equity and Special Situations funds, at the expense of quantitative funds. By contrast, macro dynamics are likely to return to the fore.” 

“We expect a richer set of relative opportunities, coming with higher risks,” he added. “We would reweight Macro funds and keep CTAs underweighted. Besides, we would maintain strategies with a tilt on carry, including Merger, fixed-income arbitrage, and EM focused funds.”

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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