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Financial markets featured strong trends during the month of September. US equities rallied hard, as did the USD prices of commodities (including precious metals) and foreign currencies such as the euro. Credit market returns were positive but less extreme, with High Yield posting larger gains than Investment Grade. Treasuries were virtually flat on the month.

The Event Driven space provided generally positive returns in September. The Lyxor Special Situations Index gained 4% on the back of equity and credit market gains (with some help from gold); it was the strongest performing Hedge Fund index over the month. Post-reorganization equities, for example, benefited from the positive environment. The Merger Arbitrage Index gained 1.9% as spreads tightened. The Distressed Index was up 0.5%.

The Lyxor L/S Equity Long Bias Index was up 3.9% on the month. Long Bias managers had maintained their exposures during the latter part of the summer and were thus poised to benefit from September’s solid gains in sectors such as basic materials and commodities. The L/S Equity Variable Bias Index was up 1%. Many managers in this space remain defensively positioned despite increasing net exposures over the month of September.

The L/S Equity Market Neutral and Statistical Arbitrage Indexes were both up 0.1%. The Market Neutral Index is the best performing L/S Equity Index year-to-date (+1.6%), reflecting some persistent trends within equities (e.g., Value vs. Growth). Life remains difficult for Statistical Arbitrage managers (the Index is down 2% year-to-date), as correlations among stock returns remain at historically extreme levels and volatility is low.

The Lyxor Long-Term CTA Index continues its run of solid performance, gaining 2.1% (+6.7% on the year). Many of these managers benefited from the persistent equity, commodity, and FX trends. The Short-Term CTA Index was up 0.5%, although the year-to-date performance of 0.4% signals the difficulty some of the managers in this space have experienced. Significant performance dispersion among Short-Term CTAs continues.

The Lyxor Global Macro Index was up 2.5%. Managers with a long commodity bias or short dollar bias readily found traction with these themes.

(press release)

www.lyxorhedgeindices.com

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