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Alternative Market Briefing

Merger arbitrage hedge funds expected to continue to rise in Q4, CTAs outperform

Tuesday, October 04, 2016

Komfie Manalo, Opalesque Asia:

The Lyxor Hedge Fund index ended the week in positive territory, fuelled by CTAs, Lyxor Asset Management said in its Weekly Briefing. Global macro funds were the primary laggards, it said. Opportunities for merger arbitrage strategies should continue in Q4.

CTAs led the winners and were up +2% as of end September 30 (+1.5% YTD). Long term models recouped the lost ground thanks to the tightening of global 10-year sovereign bond yields and their long positions on equities. Global macro funds were down -0.5% during the period (-6.8% YTD). Yet, dispersion in returns remained significant among managers. Overall, the global flattening of yield curves proved costly for most of managers. Their short stance on U.S. equities was also detrimental to performance. L/S equity funds posted healthy returns (+0.5%) led by the longest and the most variable biased funds.

Philippe Ferreira, senior strategist at Lyxor AM, commented, "As the third quarter came to an end, it is time to take some perspective. The summer lull fuelled risk assets after a turbulent first half (MSCI World +4.5% in Q3) and hedge funds benefitted from it. Strategies with higher betas outperformed, such as L/S equity and event-driven, while 'long volatility’ strategies underperformed, such as CTAs and global macro. In September, the same trends were at work, though global equities were flat."

Conditions less likel......................

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