Lyxor: Hedge Fund Index Up +0.8% As Best Year Since 2013 Looms

Nov 13 2017 | 4:03pm ET

Hedge funds booked another strong week last week as CTA and Macro strategies extended their gains and continued trends in equity, rate and currency markets supported most managers, according to the latest edition of Lyxor Asset Management’s Weekly Brief. 

Lyxor’s Hedge Fund Index gained +0.8% in the week through November 7, 2017, bringing its year-to-date tally to +4.7%. Performance of the company’s family of strategy indices was led by the CTA Broad Index, which gained +1.9%, and the Global Macro Index, which gained +1.1% for the period. Meanwhile, Lxyor’s Long/Short Equity Broad Index rose a respectable +0.8%. Two measures were down for the week, with the Event Driven Broad Index and the Fixed Income Broad Index returning -0.8% and -0.1%, respectively. 

However, all of Lyxor’s strategies are now in positive territory for the year to date. L/S Equity and Event-Driven strategies lead the pack, at +7.9% and +7.4%, respectively, while both CTA (+2.9% YTD) and Macro (+1.7% YTD) measures have erased what was shaping up to be a very poor year. 

“All in all, hedge funds are on track to potentially deliver their best year since 2013,” said Lyxor Senior Strategist Philippe Ferreira in the brief. “Provided that performance stays up in November and December, this year could be the best year for hedge funds in almost a decade. 

The sources of hedge fund returns, after two disappointing years in 2015 and 2016, are first related with solid equity market performance, no sudden jumps in volatility in asset prices and the absence of disruptions in the fixed income market, Ferreira added. However, those sources have changed over the year:

  • The first half of 2017 saw Event-Driven and L/S Equity outperforming. These two strategies have a relatively higher beta in the hedge fund space (close to 0.4 in both cases using Credit Suisse hedge fund indices over the past five years versus the MSCI World - hedged USD in total return).
  • Meanwhile, the second half of the year is seeing Global Macro and CTAs outperforming. These strategies have a relatively lower beta, at 0.25 and 0.15 respectively, using the same timeframe and indices than above.
  • In a nutshell, robust hedge fund performance this year was more a beta-driven story in H1, but less so in H2 (so far). 

“Going forward, we maintain firm convictions on Global Macro, a strategy that we upgraded back in June,” Ferreira said. “Their cautiously bullish views on equities, defensive stance on fixed income and long USD positioning fits well with our scenario. With regards to CTAs, we upgraded the strategy to Neutral in September on the back of improved trend-following conditions.”

“Finally, we continue to prefer Event-Driven to L/S Equity strategies. Tax reform in the U.S., which seems increasingly likely, will likely provide ample investment opportunities for Event Driven funds,” he continued.

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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