Lyxor: Outperformance Marks Critical Change of Paradigm for Hedge Funds

Sep 8 2015 | 5:26pm ET

At the turn of the month, hedge funds rebounded as market conditions improved, according to Lyxor Asset Management’s latest weekly briefing covering the period from August 25 to September 1, 2015 – a period which saw global market volatility lessen somewhat from the previous few weeks. 

Lyxor noted that year-to-date, hedge funds have demonstrated their ability to protect portfolios, with the firm’s Lyxor Hedge Fund Index down - 0.3% while the MSCI World and JPM Global Aggregate Bond indices are down -7% and -2.3%, respectively.

Lyxor’s Hedge Fund Index was up 0.4% last week, following a 3.3% drawdown in August. “On a risk-adjusted basis, the outperformance of hedge funds is impressive,” noted Lyxor’s Philippe Ferreira. “It marks a critical change of paradigm.” 

Following on from the drawdown in August, hedge funds on Lyxor’s platform were up in early September. Event Driven and L/S Equity funds outperformed while CTAs underperformed after being negatively affected by the rebound in commodities and the rise in bond yields. In fact, CTAs were the only one of Lyxor’s five substrategies in the red for the period, dipping -1.2%. In contrast, Global Macro funds returned 1.0% on currency moves in EUR and GBP, while L/S equity gained 0.5% as they decreased risk exposures, noted Lyxor. 

Fixed income managers dealt with flat credit spreads in Europe, while high yield outperformed investment grade in the U.S. The Fixed Income Broad Index gained 0.8%, although L/S Credit Arb gained only 0.4%. 

Lyxor noted that fears of competitive devaluations in EM and unease about the timing and amplitude of the Fed’s tightening cycle has recently caused markets to move in a way not seen for years. In the short term, the company expects market conditions will improve due to a combination of supportive fundamentals in developed markets and the Chinese not engaging in a beggar-thy-neighbor policy. 

“However, renewed bouts of volatility are likely to haunt investors regularly in the medium term due to uncertainties over interest rates,” continued Ferreira. “In this environment, hedge funds are likely to outperform traditional asset classes.”

The Lyxor Hedge Fund indices are based on the universe of funds available on the Lyxor Managed Account Platform determined on a monthly basis to be eligible for inclusion. Approximately 66 funds participate on the platform, representing $7 billion of assets under management and replicating $200 billion in AUM.

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