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Hedge funds benefited from comforting macro news flow and
the Lyxor Hedge Fund index gained 1.1% over December,
bringing year-to-date performance to 3.1%. The headline
numbers hide an even more positive picture. A growing number
of funds have participated in rising markets and 20% of the
funds in the Lyxor investment universe are up double digits in
2012.
Supported by bullish credit markets and many opportunities
in sovereign debt, L/S Credit managers clearly exceeded
expectations in 2012. The Lyxor L/S Credit Arbitrage Index
ranked first among Lyxor indices and staged a 12.1% return
with less than 3% volatility.
L/S Equity Long Bias managers were quite successful in
capturing the bulk of equities’ performance with a much lower
risk profile. By contrast, the Lyxor L/S Equity Variable Bias index
lost 0.5% over the year as many managers were slow to add
exposure during risk-on periods. The abnormally low cross
sectional equity dispersion also impaired market neutral L/S
Equity strategies whether discretionary or systematic. Following
negative returns in December, the Lyxor L/S Equity Market
Neutral Index and Lyxor L/S Equity Statistical Arbitrage Index
modestly advanced 2.9% and 2.8% respectively over 2012.
Merger Arbitrage strategies surprised to the upside in
December with the Lyxor Merger Arbitrage Index staging a
2.96% return thanks to three major deals that found positive
outcomes. With the December gain, the Lyxor Merger Arbitrage
Index closed the year up 6%, providing steady returns with a conservative budget risk in 2012. Special Sits managers gained
traction as well in December amid the buoyant share buyback
activity. The Lyxor Special Situations Index was up 1.4% over
the month, which pushed 2012 performance to 4.9%. Though
Distressed strategies stalled as a whole in December, they
offered the best yearly return among event driven strategies, as
shown by the 6.5% rise in the Lyxor Distressed Securities
Index.
The Convertible Arbitrage strategy remained a credit play rather
than volatility-related theme. Convertible issuance, a major
source of revenue for Convertible Arbitrage funds continued to
decline in 2012 to reach about $20 billion after $25bn in 2011
and $35bn in 2010, weighing on performance. The Lyxor
Convertible Bonds & Volatility Arbitrage Index advanced 4.5%
over 2012.
A more favorable positioning translated into a 1.4% gain in the
Lyxor Global Macro Index over December. Generally, Macro
funds turned net long equity towards year end and kept
concentrating their overall long interest rate exposure on Europe
where the ongoing convergence among Eurozone nations
offered attractive opportunities. Performance for the year hardly
reached 4%.
CTAs stabilized in December after struggling during most of the
year. The Lyxor CTA Short Term and Long Term indices
dropped 4% and 6.7% respectively in 2012. The poor
performance can be traced back to a number of factors: the
lack of lasting trends; the high correlation levels between asset
classes; the many turnarounds in foreign exchange markets;
misplaced bets on precious metals.
“Managers have now implemented their constructive views
about the start of 2013 and have put risk back on the table.
Net long positions in Financials in L/S Equity portfolios and a
majority of single-B rated papers among Credit Arbitrageurs’
holdings are testimony to this” says Stefan Keller, Head of
Managed Account Platform Research & External Relations at
Lyxor AM.
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