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Equities rallied strongly during the first week of November 2010, with the S&P 500 reaching the 2010 high. And then macro fears set in and risky assets were marked down sharply. Equities gave back all of their gains, but purportedly safer assets did not prove to be a safe haven. Treasury bond yields rose sharply – whether they were issued by the U.S. or by Germany.

The one market with strong trends was foreign exchange. The U.S. dollar persistently gained against the euro as European debt concerns mounted, but the USD also trended upward against the Japanese yen. Tensions emanating from the Korean peninsula and fears of Chinese overtightening worked to drag down the yen.

The mid-month reversal of markets proved painful for trend-following CTAs, many of whom hold net long positions across a range of futures. The Lyxor CTA – Long-Term Index declined 2.4%. Gains during the early part of November were more than offset by losses during the remainder of the month. The Lyxor CTA – Short-Term Index declined 2.0%, bringing the index back into the red for the year (-0.9% year-to-date).

The Lyxor Global Macro Index declined one percent on the month, with the usual dispersion of managers across different styles. Managers with heavy equity weightings or more directional Emerging Market exposure fared worse than some of their peers.

Event-Driven managers displayed a variety of performances. The Lyxor Distressed Index gained 1.2%, reflecting idiosyncratic drivers. The Lyxor Merger Arbitrage Index declined 1.1%, with virtually all managers in that space down for the month on wider spreads. The Lyxor Special Situations Index gained 0.1%. Managers who had previously bought protection on European sovereign debt performed quite strongly, but other managers bore the brunt of the sell-off.

The Lyxor Convertible Arbitrage Index continued its recent run, gaining 0.4% on the month. The index has gained 4.2% on the year (convertibles in the secondary market have relentlessly richened in recent months due to the hunger for yield). The Lyxor Fixed Income Arbitrage Index gained 0.8% as managers in both the mortgage-backed space and the sovereign space found traction. The Lyxor L/S Credit Arbitrage Index managers struggled on the back of spread widening.

Equity-oriented managers generally had a modest month. A few specialties, such as Japanese equity markets or U.S. small caps, were in favour, but broad markets produced little in the way of returns to beta. The Lyxor L/S Equity Long Bias Index gained 0.5%, and the L/S Variable Bias Index lost 1.1%. The L/S Equity Market Neutral Index declined 0.6%, and the L/S Equity Statistical Arbitrage Index was flat...Corporate website: http://www.lyxor.com/ target=_blank>Source
PD