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Hedge funds have started 2013 on a high note, supported
by the rally in risky assets, amid improving economic data,
reflation plans in Japan and the absence of disappointing news
on the political front. Most of the best January performers of the
Lyxor platform are to be found in the L/S Equity space. Long
biased managers maintained net exposures levels at about
60% on average while variable bias funds’ managers kept
increasing gross and net exposures to the highest levels seen
over the last five years. Moreover, funds reinforced the beta
trade by concentrating their sector bets on financials and
industrials. Obviously, equity long and variable strategies
benefited from this bullish positioning and the L/S Equity Long
and Variable Bias indices returned 3.7% and 2.5% respectively.
More importantly, the start of the quarterly earnings season
offered additional opportunities for alpha generators. Market
neutral strategies managed to capture those opportunities.
Cross sectional dispersion recovered somewhat and volatility
continued to ease. Both trends compounded and the ratio
dispersion to volatility, the main performance driver of the
segment, moved up.
As a whole, market neutral funds stand out as the best
performing strategy in January within the Lyxor universe with the
Lyxor L/S Equity Market Neutral index staging an eye-catching
5.1% gain. Market neutral systematic strategies benefited as
well from the improving trading environment but to a lesser
extent and the Lyxor L/S Equity Statistical Arbitrage index
advanced 1.9%.
Event Driven hedge funds posted mixed performances. Merger
Arbitrage strategies lagged their Special Situations and Distressed peers as a major deal broke mid-January: European
regulators moved to block a transatlantic deal in the packagedelivery
sector. Merger Arbitrage players as a whole recouped
their losses and the Lyxor Merger Arbitrage index ended the
month up 0.2%. Positions in consumer cyclical, financial and
communication sectors allowed Distressed strategies to gain
1.3% in January. Special Situations managers returns were led
by both favorable market directionality and idiosyncratic
investments. The Lyxor Special Situations index sported a 2.6%
advance year-to-date.
Managers in the fixed-income space were confronted to a
more challenging environment where high grade sovereign
bonds, so called safe havens, suffered from investors’
disinterest.
Arbitrageurs disappointed and the Lyxor Fixed
Income Arbitrage index declined 0.6%. Credit related strategies
were better off, buoyed by the compression in credit spreads
and the Lyxor L/S Credit Arbitrage index added 1.4% in
January. The very low volatility backdrop remained detrimental
to Convertible strategies but the rally in equities and a revival in
issuance drove performance. The Lyxor Convertible Bonds
Arbitrage Index yielded 1.2% over the month.
Global Macro strategies recorded gains on both their net long
equity exposures and their overall net short exposures to bonds
but positions in foreign exchange and precious metals
detracted from performance.
The Lyxor Global Macro Index
appreciated 1.2% year-to-date. Long term CTAs, broadly long
equities and long interest rates nicely caught the onset of the
“Great Rotation” out of bonds and into equities. The Lyxor CTA
Long Term index advanced 1.4% in January. By contrast, high
frequency funds stalled as a whole.
“The normalizing trading environment has been particularly
beneficiary to market neutral managers recently. Alpha
generation has been significant in January ” says Stefan Keller,
Head of Managed Account Platform Research & External
Relations at Lyxor AM.
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