Lyxor Weekly Brief

The Lyxor Hedge Fund Index was up +1.1% in October. 8 out of 11 Lyxor Indices ended the month in positive territory. The Lyxor LS Equity Long Bias Index (+4.5%), the Lyxor Special Situations Index (+3.5%) and the Lyxor Global Macro Index (+2.1%) were the best performers...

>> Encouraging October economic releases, speculation about non-US central banks actions, and the re-risking of the smart money helped to fuel a rally. The wheel turned in favor of Event Driven and the longest bias L/S Equity. In contrast, CTAs underperformed, hit on their long bonds exposure. Market Neutral funds also suffered from factor rotations.

>> Within the L/S Equity space, US long bias funds led the group, while pressure fell upon the Market Neutral funds. After weeks of bleeding, the longest bias funds staged a substantial rally, especially in the US. It made up for most of the lost ground since  the end of August. Exposures were little altered over the period: this was mainly a beta recovery. In contrast, the other sub-strategies only captured part of the bullish impetus. The Variable bias funds, which had demonstrated an impressive resilience during the sell-off, remained cautiously exposed. By the end of October, they had only marginally rebuilt their net exposures. Market neutral endured a difficult month, hit by two rounds of market rotation. The first one started by the end of September, with a severe turn in the Momentum factor. The second rotation – of lesser violence – unfolded after the FOMC, which resulted in a sector repositioning. The loads of EPS releases published over the month were not a key source of alpha. While better than feared, the US season remained very macro driven with little stock discrimination. The season in Europe (and to a lesser extent in Japan) proved more challenging, with more disappointments. As markets gradually exit this W-shaped episode, stock correlations are starting to recede. This should help restore the alpha potential.

>> Event Driven funds, main victims of the sell-off, were prime beneficiaries of the rally. Special situation funds outperformed in October. Receding concerns about global growth, further easing expected from non-US central banks, and flows returning to the market altogether gave a strong lift to corporate situations. The recovery was particularly notable in the most liquid segments. The rally in spinoffs and IPOs was faster than in activist or in distressed positions. The healthcare sector continued to be a source of volatility. However funds shaved off their holdings in the sector, and in particular, few funds had meaningful exposure to Valeant. The recovery in Merger Arbitrage lagged, with several deals coming under regulatory scrutiny.

>> The L/S Credit Arbitrage funds delivered flat returns. Conservatively exposed, they didn’t benefit from the tightening of HY spreads both in the US and in Europe.

>> CTAs’ long exposures in bonds came under pressure. The performance of the long-term models see-sawed over the month, paced by the volatility of energy contracts and by rates. US yields, which surged following the FOMC, were the primary detractor of performance. The rapid repricing of the US front curve was partially offset by gains in European bonds. These rallied following ECB’s hints at a possible action by December. Currencies and equities were minor but positive contributors. The overall dollar exposure of long-term models was gradually cut. Instead, they held increasingly differentiated FX positions, including short Euro and JPY (vs. USD), against longs in GBP. The equity bucket was also mildly positive, as models gradually rebuilt their long positions. Faster in rotating their portfolios, short-term models outperformed their long-term peers in October.

>> Strong Global Macro returns, boosted by their long held dollars and equities. The month started on a positive note. Their gains from the equity rally more than offset losses in the FX and rates exposures. They actively rotated their bond exposures, which did not deliver substantial gains. However, the bulk of the P&L was achieved after the mildly hawkish FOMC. Their long held strong USD positions finally paid off. Their exposure to commodities remained limited in net exposure, most of their stakes being concentrated on energy relative value arbitrage.

>> “The rally is losing breath, providing fading support to the most directional L/S Equity and Event Driven funds. Our focus gradually returns to the relative value and macro strategies.” says Jean- Baptiste Berthon, senior cross asset strategist at Lyxor AM.



To receive our free newsletter, subscribe HERE


UK Institutional Investors and Financial Advisers and Wealth Managers
Important legal information

Before accessing this website you must read and accept the following terms and legal notices. If you are not able to access the website according to these terms or do not understand their meaning you must not proceed any further and should decline to accept them.

This website includes information about financial products that are not registered for sale in United Kingdom. This information is therefore made available solely to persons meeting the below criteria. These persons must not pass on any information to third parties with whom it would not be lawful to do so according to local legislation and regulation.

Persons accessing this website must be either an Investment Professional or a High Net Worth Company or Financial Advisers or Wealth Managers as outlined below:

An 'Investment Professional' is defined to include:

(i) an authorised person (this will include banks, stockbrokers, securities houses, investment managers, insurance companies and financial intermediaries);

(ii) a person who is exempt from the requirement for authorisation under the Financial Services and Markets Act 2000 (“FSMA”) (this will include appointed representatives of authorised persons, The Bank of England, central banks of other EEA States, The European Central Bank and the International Monetary Fund);

(iii) a person whose ordinary activities involve him in carrying on a regulated activity as defined in the FSMA (e.g., arranging deals in or advising on investments) to which the financial promotion relates or who it is reasonable to expect will carry on such activity for the purposes of a business carried on by him;

(iv) a government, local authority or international organisation; and

(v) a person acting in his capacity as a director, officer or employee of a person of a type described in paragraphs

(i) to (iv) above (i.e. he must not be acting on his own personal account) whose responsibilities, when acting in his capacity as a director, officer or employee of such person, involve him in engaging in regulated activities as defined in the FSMA.

High Net Worth Companies, include:

(i) a body corporate which has a called-up share capital or net assets of at least £500,000 (if it has more than 20 members or is a subsidiary of a parent undertaking with more than 20 members) or, in any other case, at least £5 million;

(ii) an unincorporated association or partnership which has net assets of at least £5 million;

(iii) the trustee of a trust with assets (before deducting any liabilities) of at least £10 million or which were at least £10 million within the previous year; or

(iv) a person acting in his capacity as a director, officer or employee of a person of a type described in paragraphs (i) to (iii) above (i.e. he must not be acting on his own personal account) whose responsibilities, when acting in his capacity as a director, officer or employee of such person, involve him in engaging in regulated activities as defined in the FSMA.

Financial Advisers and Wealth Managers, include:

Persons that are authorised by the relevant authorities in the UK to act as a professional investor or financial adviser

Persons who do not meet these criteria cannot proceed any further and must leave the website.

This site uses cookies. Cookies help us know you better and improve your navigation experience. By continuing to browse the site you are agreeing to our use of cookies.