Lyxor: Hedge Fund Index Slips On CTA, Macro Divergence

Aug 7 2017 | 11:20pm ET

Hedge funds lost some ground last week as returns from Global Macro strategies and CTAs moved visibly in opposite directions,  according to the most recent edition of Lyxor Asset Management's Weekly Brief

The company’s widely followed Lyxor Hedge Fund Index dropped -0.4% for the week through August 1, 2017, bringing its year-to-date tally back into negative territory at -0.3%. 

The dollar’s depreciation dominated the discussion last week. The appreciation of the euro supported long-term CTAs, which gained +0.2% in the week, although some of the gains were partially offset by short JPY vs. USD positions. For similar reasons, Global Macro underperformed, losing -0.8%. Their shorts positions on the single currency, which have increased lately, were the largest detractor to performance, Lyxor said.

For the year to date, these two strategies are down -4% and -4.3%, respectively. Event-Driven and Fixed Income Arbitrage strategies were also slightly down, losing -0.2% apiece. For the year to date, Event-Driven leads Lyxor’s table at +6.5%.

The dollar’s move is having far reaching market implications, Lyxor’s note continued. In particular, it has fueled the rally in emerging market assets, as local currency appreciation is disinflationary and provides room for monetary accommodation. Over the recent weeks, South Africa, Colombia, Brazil and India cut policy rates, in some cases by a large magnitude.

The dollar’s weakness, has taken many Macro investors off guard, notes Philippe Ferreira, Lyxor’s senior strategist. “Global macro managers continue to assume that monetary policy divergence between the U.S. and the Eurozone should lead to Euro weakness,” he said in the note. “Going forward, we think that dollar depreciation has gone too far and maintain the overweight stance on Global Macro managers, a strategy that we upgraded a month ago.”

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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