Lyxor: Hedge Fund Index Flat As Rising Yields Sink CTAs

Oct 24 2016 | 5:30pm ET

Long/short equity hedge funds continued to benefit from directionality in the week through October 18, although rising yields and energy prices trimmed gains among CTAs and macro funds to leave Lyxor Asset Management’s Hedge Fund Index flat for the period.

The zero return leaves Lyxor’s index up 1.2% so far in October and -1.0% for the year to date. The risk-on stance helped long-bias L/S equity and market neutral funds, recorded healthy returns, while other hedge fund strategies posted generally flat or marginally negative performance, the company said. 

Among Lyxor’s sub-strategies, the Lyxor Event Driven Broad Index slipped -0.1%, Within the group, special situations gained +0.5% while merger arbitrage fell -0.3%. So far in October, Lyxor’s Global Macro Index leads the pack at +5.3%, while CTAs 

CTAs were flat as systematic managers trimmed bond exposures in the facing of rising yields, Lyxor said. The upward trend in bond yields has led to a sharp adjustment of CTAs’ long exposures to fixed income, with trend followers turning short duration on U.S. fixed income, while long European fixed income exposure has also been massively shaved off. In line with the more defensive positioning, CTAs have increased their exposure to energy, Lyxor said, shifting from a net short stance a few weeks ago to a net long stance at present. 

In mid-September, Lyxor downgraded CTAs to neutral from overweight on what they perceived as an overly aggressive long fixed-income stance. The company also disclosed a preference for shorter-term models. Both recommendations have worked out well so far, the company noted, with the Lyxor Long Term CTA index down -2% since September 20th while the Lyxor Short Term CTA index is down only -0.6%.

“The trend-following environment has continued to deteriorate,” said Philippe Ferreira, Lyxor senior strategist. “As a result, it seems too early to re-weight the strategy, but we stand ready to buy back [in].”

Lyxor also noted that capital flows into alternative UCITs have continued at a sustained pace in September, jumping to €7.5bn in the third quarter, up from €2.8bn in the second.

Lyxor’s Weekly Brief aims to identify trends in hedge fund investing while leveraging the proprietary information accessible through the company’s managed account platform.

Lyxor’s Hedge Fund indices are based on the universe of funds available on the platform determined on a monthly basis to be eligible for inclusion. Participating funds represent $7.2 billion of assets under management and replicating $220 billion in AUM as of September 30, 2016.

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