Lyxor: Hedge Fund Index Up +0.4% As Macro Outperforms

Oct 30 2017 | 8:13pm ET

Hedge funds gained again last week as managers benefited from continued strength in global equity markets and short rate allocations, according to new data from Lyxor Asset Management.

The Lyxor Hedge Fund Index rose +0.4% for third consecutive week during the period between October 17 and October 24, Lyxor said, with global macro managers outperforming and CTAs ending the week flat. For the year to date, Lyxor’s index is now up +3.4%.

Global macro managers benefitted from a recovery in bond prices, the company said, while long Japan positions were profitable. The Global Macro Index gained +0.6% for the week, enough to push the measure’s YTD tally into the green for the first in many months at +0.2%.

Event-Driven managers also did well last week, gaining another +0.3% on the strength of Special Situation funds and Merger Arbitrage. So far this year, Lyxor’s Event-Driven Broad Index leads the table with an +8.3% return. 

CTAs were flat as losses endured on the fixed income bucket were offset by gains delivered on the equity side. The sole substrategy among Lyxor’s five to still be down for the year, the CTA Broad Index sits -0.7% YTD.

In this week’s research note, Lyxor reiterated its overweight stance on merger funds. “Since the end of last year, the perception of merger risk receded,” wrote Lyxor senior strategist Philippe Ferreira in the brief. “The number of deals motivated by an inversion objective dried out and very few operations broke out (less than 2%). In parallel, prospects of foreign earning repatriation and improving corporate profits maintained an attractive relative carry vs. credit or yields, with limited duration risk. 

“This lured a number of non-merger specialists in the space,” he added. ““As a result, a growing number of operations became priced for perfection with several months still running before completion. They were vulnerable to any surprise in earnings or a change of tone in antitrust regulators. 

“Instead, merger specialists focused on the most complex deals, which offer bidding war prospects and higher spreads, [and] became more tactical on the richly priced mainstream operations, being short when the risk asymmetry reached a climax. We believe that this strategy should be run by experts, with prior legal reviews and careful valuation analysis. We maintain our OW on the strategy.”

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 $12.6 billion of assets under management and replicating $220 billion in AUM as of September 30, 2017.

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