All Lyxor Indices ended the month of June in negative
territory, worst index performers were the CTA Long Term
(?2.64%), the Lyxor Long/Short Equity Market Neutral Index
(?2.45%) and the Long/Short Equity Credit Arbitrage Index
(?2.40%).
The Lyxor Hedge Fund Index posted a negative
performance at -1.63% in June but remains solidly anchored
in positive territory at the end of H1 2013 (+1.85% YTD).
>> Hedge Fund performance in June was hurt by de-risking
and a re-pricing of all assets due to higher bond yields. Most
asset classes declined in value and hedge funds were hurt
by a lack of safe haven and higher correlation among assets.
The Lyxor Hedge Fund Index was down -1.6% in June.
Importantly, the bulk of the bond yields re-pricing might be
finished. Though higher yields over the next 12 months
remain a distinct probability, few market participants expect
bond yields to increase by the same sharp pace as in June.
In addition, investing in emerging markets proved difficult in
June as the entire asset class sold off on the back of the rate
funding spike in China. This funding spike was temporary
and might recede as the authorities in China find a balance
between curtailing credit growth and keeping financial
markets functioning smoothly. According to managers on the
Lyxor Managed Account Platform, the dislocation in asset
prices in June represents an attractive entry point for hedge
funds to benefit from normalization going forward.
>> Equity focused funds performed poorly as both cyclical
and defensive stocks were down in June. L/S Equity Long
Bias funds were down 1.7% in June, L/S Neutral funds were
down 2.5% and Variable bias funds were down 0.4%. Even
though equity indices sold off, long bias funds increased their
net exposure to 62% from 58% by adding on the long side to
high conviction ideas. Variable bias funds played it more
defensively, and reduced their net exposure in June from
65% to 52%. The new net exposure of Variable bias funds is
about in-line with the average of the prior year.
>> Global Macro Funds also fared poorly in June, down
1.9%. Two major factors contributed to the negative
performance. First, the change in tone by the Fed surprised
many market participants and caused a massive coordinated selloff in fixed income markets globally. Fixed income sold off
in Europe even though the ECB didn’t signal any policy
change. The magnitude of the fixed income sell off in
emerging markets was even worse than the sell-off in
developed economies. EM currencies also declined vs. the
USD and this likely hurt the performance of macro funds.
The second major factor was the continued pullback and
volatility in Japanese equities and USD/JPY. In terms of
gross exposure to asset classes, macro funds decreased
exposure to commodities and rates and increased exposure
to FX trades over the course of June.
>> June proved to be a challenging month for CTA’s as well.
Short-term CTA’s were down 2.1% while long-term CTA’s
were down 2.6%. CTA’s were hurt by the bond and equity
sell-off while the funds were positioned on the long side. In
addition, the USD weakness vs. other G7 countries in the 1st
half of June contributed to negative performance. The
continued decline of commodity prices was a positive
contributor, although not enough to offset the losses in other
asset classes.
>> Credit weakness pressured performance for funds
focused on the space. L/S Credit Arbitrage (-2.4%) and CB
Arbitrage (-14%) were both hurt by a widening of spreads.
Credit funds cut risk throughout the month with gross
exposure declining to 208% from 264% in May and net
declining to 40% from 58% in May.
Relative Value and idiosyncratic strategies like Distressed and
Merger Arbitrage fared relatively better than other strategies
with returns of -1.8% and -0.1% respectively. However,
Special Situation Strategies were down 2.3%.
“The final month of the quarter has seen all strategies
giving back performances, but this situation is unlikely to last
according to the managers we spoke to. From a top-down
perspective, new opportunities and more mispricing have
resulted result from the current conditions while bottom-up
stock pickers get ready to pick up the pieces during the
upcoming Q2 earnings season” says Stefan Keller, Head of
Managed Account Platform Research & External Relations at
Lyxor AM.
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