G3 dominance on world financial markets continued in
February, this time raising investors’ risk aversion. Worries
about the impact of fiscal restraint on the U.S. economy and
the disappointing results of the Italian elections that leave the
country in a political deadlock combined to put a halt on the
rally risky assets enjoyed in January. However performance
was quite mixed. Eurozone equities suffered the most as
recently published data kept suggesting weak fundamentals.
U.S. equities proved resilient, backed by a solid macro news
flow and Ben Bernanke’s testimony which smoothed fears of a
premature shift in the Fed’s QE regime. Japanese stocks
buoyed by upward revisions in earnings and hopes that the
BoJ will turn to a more reflationary stance, seemed immune
and advanced further.
While safe-haven sovereigns benefited from this bout of
risk aversion, overall equity markets lost some ground and the
MSCI World index declined 0.2 % in USD terms.
Managers remained constructive as evidenced by the
market beta exposure they chose to hold: the median equity
beta on the Lyxor platform changed little recently at about
30%, a level comparable to those observed in the spring
2011, before the euro crisis.
Noticeably, again this month L/S equity market neutral funds
stand out as one of the best performing strategies, which
brings year-to-date performance to 6.81%. Managers, that had
increased leverage, took advantage of the opportunities offered
by the earnings season.
The increased dispersion did offset the negative impact related
to the spike in volatility and benefited to alpha generators.
Two Event Driven sub-strategies out of three were down in
February with the Lyxor Special Situations and Distressed
Securities indices losing 1.06% and 0.37% respectively over
the month. Merger Arbitrage funds proved rather resilient with
an overall gain of 0.73% on the related Lyxor Index. The recent
resurgence in merger activity was mainly driven by industryspecific
events which traded very tightly and had a limited
impact on the P&L of dedicated arbitragers.
L/S Credit Arbitrage funds returned flat performance while
their Convertible Arbitrage peers slightly eroded over February
as the environment for credit markets turned more challenging,
with spreads widening particularly in Europe. Though credit
arbitragers generated positive alpha, they did not manage to
fully de-correlate from the negative backdrop. Investors’
renewed appetite for high grade sovereigns and tensions on
Italian debt benefited to managers in the fixed income and
global macro spaces. Yet, many of the global macro funds
posted losses over the month with commodities being a major
detractor from performance. The Lyxor Global Macro Index
declined 0.74% in February.
Sliding equity and commodity markets weighted the most
on long term CTAs that had turned long equity. The Lyxor CTA
Long Term and Short Term indices lost in February 1.22% and
0.15% respectively.
“The unexpected outcome of the Italian elections has hit
many hedge fund managers this month but a full-blown
financial crisis is definitely not on their agenda ” says Stefan
Keller, Head of Managed Account Platform Research & External
Relations at Lyxor AM.
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