Lyxor: Hedge Fund Index Gains As Bond Yields Rise

Sep 25 2017 | 6:24pm ET

Hedge funds posted mild gains last week as continued recovery in global macro and fixed income strategies outweighed renewed weakness in CTAs, according to Lyxor Asset Management’s most recent Weekly Brief.

The company’s widely followed Lyxor Hedge Fund Index gained +0.1% for the week through September 19, the company said. The result brings the year-to-date performance of the metric to +0.9%. 

CTAs were again under pressure, continuing the seesaw nature of 2017 performance in the segment, and the company’s CTA Broad Index was the only negative performer (-1.3%) among Lyxor’s five substrategies. This time, rising bond yields and the appreciation of the GBP were the culprits, Lyxor noted, while long positions on gold also added to losses. Conversely, the company’s Fixed Income Broad Index was the primary gainer last week, up +0.7% and pulling YTD performance to +4.7%.

For the year to date, Lxyor’s Event Driven Broad Index remains in the lead at +7%, while Global Macro, which gained 0.1% for the week, is bringing up the rear at -3.3%.

“Global macro funds faced hurdles until end-July as improving economic conditions failed to translate into rising bond yields,” said Lyxor senior strategist Philippe Ferreira in the research note. “In parallel, monetary policy divergence between the Euro Area and the U.S. also failed to translate into dollar appreciation versus the Euro, which many macro funds continue to expect. But the strategy is now reaping the benefits of its positioning, which remains unchanged, i.e. constructive on the global economic outlook.

“Going forward, we believe that robust economic conditions, U.S. monetary policy normalization and expectations that the U.S. administration will soon move forward on fiscal reform will lead to higher bond yields in mature markets and lift the USD,” he added. “In this environment, we maintain an overweight stance on Global Macro funds, a strategy that we upgraded back in June. Within the Global Macro strategy, we maintain a preference for multi-asset and EM funds compared to discretionary Fixed Income/ FX specialists. Both asset classes are likely to remain challenging to navigate as central banks remove accommodation. 

“We also maintain Event-Driven and Fixed Income Arbitrage at overweight, while we are more defensive on L/S Equity and CTAs, both at neutral,” Ferreira said.

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 August 31, 2017.

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