Lyxor: Hedge Fund Index Stays Flat In July As Trend-Following Strategies Underperform

Jul 31 2017 | 9:41pm ET

Despite continued strength in risk assets and records in several asset classes, hedge funds were again range-bound last week (and for July in general) as positive performances from event-driven, fixed income and long/short equity strategies were offset by continued negative returns booked by CTAs and global macro funds. 

The results, reported by Lyxor Asset Management in their latest Weekly Brief, show the company’s flagship Lyxor Hedge Fund Index was up 0.1% for the week ending July 25, which brought July’s return back to an exactly flat +/- 0.0% with only four trading days left in the month. 

CTAs were again under pressure, falling 0.2% for the week to bring the strategy’s YTD returns to -4.1% - the worst showing among the five major segments tracked by Lxyor. They continue to be penalized by commodity allocations as short positions on both energy and precious metals contracts suffer, Lyxor said. 

On the other hand, the company’s Event-Driven Broad Index gained 0.5% in the week to land +6.8% for the year so far. The table-leading performance is thanks to positions in the energy, health care and consumer cyclical sectors, Lyxor said. 

Perhaps befitting the equity market’s record-low volatility, Lyxor’s L/S Equity Index was flat again last week but up +0.9% for the month due to returns achieved by market neutral strategies. The company noted that as the S&P 500 hit a record high and the VIX hit a record low, the MSCI World Index was up for the ninth month in a row – something not seen since 1987. 

“In spite of the strong momentum, we fear markets may have jumped the gun on monetary stimulus and more prudent investors might choose not to chase the rally at this point,” observed Lyxor senior strategist Philippe Ferreira. “In the hedge fund space, recent trends can be looked from different perspectives. Strategies that did well recently and on which we have maintained overweight positioning outperformed in July - event-driven and fixed income strategies lead the pack in July and year-to-date. 

“Conversely, trend following strategies [have] underperformed. Event-Driven is a strategy on which we maintain an overweight stance...Merger Arbitrage is a strategy that appears particularly appealing in the context of richly valued traditional assets,” he added.

Lyxor’s research also suggests sustained flows into alternative UCITs in Europe mean investors are diversifying their assets at an elevated pace. The asset class experienced inflows up to €4.5 billion in June and €23 billion year-to-date, above the figure observed in the first half of last year. Also, flows into mutual funds domiciled in the U.S. and tracking European equities experienced a reversal recently, suggesting that appetite for European stocks is rising in the U.S. 

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 June 30, 2017.

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