Lyxor: Hedge Fund Index Gains Again On L/S Equity, Macro Strength

Oct 9 2017 | 10:46pm ET

Solid performance by macro, event-driven and long/short equity managers helped maintain positive momentum among hedge funds last week, according to new research from Lyxor Asset Management.

The company’s Hedge Fund Index was up +1.0% for the week through October 3, bringing the measure’s year-to-date tally to +2.1%. Hedge funds remain broadly supported by rising global growth, normalization of monetary policy, U.S. tax cut discussions and the start of a positive earning season, all of which continue to boost equities, rates, and the U.S. dollar, Lyxor said.

Global macro funds continued their winning streak during the period, with Lyxor’s Global Macro Index gaining +1.4% supported by constructive views on Europe through long equities and short bonds. YTD losses were narrowed to -1.1%.

Long/short equity managers also delivered solid returns last week, with the company’s L/S Equity Broad Index gaining +0.7%. U.S. managers thrived form their exposures to technology and consumer non-cyclical, Lyxor said, while European funds benefitted from their tilt toward cyclical. YTD the measure is +5.1%

Event-driven managers also did well last week, gaining +0.8% to bring Lxyor’s Event Driven Broad Index to +7.5% YTD and first place among the company’s five substrategies. 

CTAs, which have faced strong headwinds over the past several months, also gained for the week. Lyxor’s CTA Broad Index gained 0.5% to narrow its YTD loss to -5.1%. 

The only Lxyor strategy index in the red for the week was the Fixed Income Broad Index, which lost a minor 0.1% to trim YTD performance to +4.1%.

“The good news is that returns this week, and more importantly year-to-date, are displaying alpha contribution on top of the gains from their natural market exposures,” said Lyxor senior strategist Philippe Ferreira in the research note. “While 2015/16 proved challenging for active investors, 2017 is offering a much better vintage for the hedge fund industry." 

A number of factors have contributed to improve the environment, Lyxor explained. First, markets movers were less speculative, with both quieter central banks and politics. As a result, assets traded closer to their fundamentals. Second, global growth has accelerated, spurring more directionality in a number of market segments. Third, economic divergences have widened across regions and created more relative opportunities. Fourth, more recently, normalization of monetary policies across several central banks could lift a key barrier for alpha generation. 

“This better backdrop [has] helped hedge funds produce more sustainable alpha throughout the year,” Ferreira continued. “They rank favorably against most of their multi-strategy peers in risk-adjusted performance. Meanwhile, the diversification offered by hedge funds is regaining strength, with weakening correlation vs. mainstream asset classes and across hedge fund strategies.”

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 $12 billion of assets under management and replicating $220 billion in AUM as of August 31, 2017.

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