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Financial markets remained conducive to hedge funds in
November. Macro data published over the month was mixed
but monetary policy kept erring on the dovish side particularly in
Europe where the ECB cut the refi rate. The strong provision of
liquidity fuelled the rise in equity and credit markets and allowed
a further drop in correlations between (and within) asset
classes. Hedge funds took advantage of the rising opportunity
set to add alpha to their beta returns, showing solid
performances. The Lyxor Hedge Fund index gained 0.6% over
the period and is up 5.5% year-to-date.
CTAs performed the best in November, engaging a strong
recovery thanks to the equity uptrend and adequate positioning
in FX (long Euro, short JPY) and commodities (short gold). It is
noticeable that long term trend followers continue to
significantly outperform pattern recognition strategies.
The L/S Equity market neutral sub-strategy was the second
best performer as the drop in correlations within US and
European equities helped neutral managers benefiting from
more opportunities in relative value trades.
Long biased
strategies also rallied (+1.5%), supported by U.S. funds
exposures to mid cap names, consumer and financial sectors.
Large exposures to the communication sector, subject to
intense M&A activity, provided additional arbitrage
opportunities. Finally, variable biased managers also performed
well (+1.2%). They kept net exposures relatively low (<40%)
and gross exposure relatively high (>200%), a sign of strong
conviction on both the long and short books.
Event driven strategies continued to deliver solid returns
with the Lyxor Special Situations Index and the Lyxor Merger
Arbitrage Index up +1% and +0.7%, respectively. Several
idiosyncratic catalysts played out positively. Merger Arbitrage
funds benefited from a spread tightening in several transactions
and from their more directional special situations portfolios.
Long/Short Credit Arbitrage posted positive gains (+0.4%)
in November mainly on the back of tightening high yield
spreads in Europe while they widened somewhat in the U.S.
Cash credit markets outperformed derivatives in November.
Valuation in credit market remained stretched and dispersion
anaemic, which prompted managers to keep gross exposure
at more than 250% to boost performance from pair trading
strategies.
The Convertible Bond Arbitrage strategy was virtually flat
amid changing market conditions.
The primary market was
extremely active with about $20 billion issuance over the
month. Though an active primary market is usually favourable,
the massive issuance weighed on valuation and raised concern
about investors’ absorption capacity. Convertibles lost some
ground relative to their underlying shares.
Macro funds underperformed with the Lyxor Global Macro
Index declining 0.8% in November. Profitable long positions on
equity and fixed income were more than offset by detrimental
bets in the forex and commodity space. Short bets on euro
suffered from the currency strength while the continued sell-off
in gold weighed on long positions.
“Long term trend followers significantly outperformed in
November as both the upward trend in risky assets and
currency movements were supportive.” says Philippe Ferreira,
Head of Research and External Relations at Lyxor Managed
Account Platform.
Most Hedge Fund Indices on Lyxor’s Platform were up in November[[MTD returns are based on performance from the last estimated NAV of the previous month until the last estimated NAV of the reported month.]][[Source: Lyxor AM]]
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