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The Lyxor Hedge Fund Index posted a positive
performance of 1.58% in October (+4.80% YTD).
>> Hedge funds were helped by rising asset prices and
delivered solid results. The Lyxor Hedge Fund Index was up
1.6% in October, with all strategies generating positive results.
Strategies exposed to equities performed the best. The median
exposure to equities of all hedge funds remained at the top of
the range at 33%, suggesting that managers remain
constructive.
>> Equity strategies generated strong performance. L/S Equity
Long bias was up 1.6% in October (13% YTD). The managers
benefited from the high net exposure to equities (73%). L/S
Equity Variable bias managers were up 1.6%; with a net
exposure at the end of October at 36%. Sector positioning in
US equities increased on financials, communication and
materials and decreased on Consumer Staples. In Europe, the
biggest increase in net exposure was in Communications while
net exposure decreased in Industrials and Consumer Staples.
>> The Event Driven space also produced solid results in
October. Special Situation funds returned 1.1% (10% YTD).
These funds are becoming like more traditional L/S equity
managers. They maintained a net equity exposure at 44% and
net credit exposure of 19%. Merger Arbitrage funds were up
1.4% but managers reduced risk, with net exposure down from
61% to 43%, suggesting less directional views.
>> L/S Credit Arbitrage funds gained 1.2% as credit spreads
tightened in the US and Europe. Funds with long exposure in
Europe had particularly strong gains.
Funds increased risk
meaningfully with gross exposure at 275% from 250%. This
probably follows investor’s recent shift in expectations that
tapering will not occur before March 2014.
>> CTA Long Term returned 4%. Managers are long equities
and bonds, having a 38% risk allocation to equities and 13% to
bonds. The equity risk allocation is the highest in the past 10
years. CTA Short Term had a 1.2% return but are down 5%
YTD as the strategy continues to struggle and hurt by low
volumes and low intra-day dispersion.
>> Global Macro funds were up 0.9%. Net equity exposure
increased to 54% over the course of the month. Gross
exposure to short-term rates increased to 110% but decreased
on long-term rates to 160%.
The opportunity set to profit from
views in the short-term rates market was high as markets had
priced an imminent rate hike in the US, UK and Europe. This
pricing has since reversed.
>> Equity and macro strategies should continue to benefit from
a normalized environment with low correlations. Within the
equity space, Special Situation managers have demonstrated
an ability to unlock shareholder value.
“Markets remain driven by central banks largesse despite
signals of economic recovery. High beta strategies have
delivered and hedge fund managers are positioned to benefit
from it” says Philippe Ferreira, Head of Research and External
Relations at Lyxor AM Managed Account Platform.
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