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The first week of May 2011 was dominated by the commodity stories. Silver plummeted by nearly a third as margins rose by 84% in less than two weeks.* Crude oil fell nearly 15%* as the death of Osama Bin Laden and persistently positive oil inventory surprises preceded a reversal of the first quarter’s price run-up. Poor macro data reinforced the trend, but the sharp decline in net long futures positioning suggests that significant deleveraging played a part.

Global Macro and CTA managers bore the brunt of the sell-off, with the Lyxor Long-Term CTA Index declining 4.1% on the month. The Short-Term CTA Index declined 3.4%, as many of those managers suffered from losses in equities but were less exposed to commodities. The more bullish Global Macro managers with higher equity and commodity positions suffered predictably, dragging down the index 2.5% on the month.

Broad equity markets declined sharply before regaining a majority of the losses at the end of the month. Long/Short Equity managers generally declined less than the broad markets, with the Lyxor Market Neutral Index gaining 0.6%. The Long Bias Index declined 0.7% and the Variable Bias Index declined 0.6%. Increased correlations across stocks and generally low volatility worked against statistical arbitrage managers, with the index declining 0.6%.

Within the Event Driven segment, the Lyxor Special Situations Index declined 1.8% despite a rebound at month-end. Managers suffered as financial and materials stocks, heavy in special situations portfolios, declined more than the broad averages. The Lyxor Merger Arbitrage Index displayed its typical low volatility, declining 0.4%. One notable drag on merger arb performance was the highly publicized withdrawal of Nasdaq’s offer to buy NYSE Euronext after regulators put the kibosh on the deal. The Lyxor Distressed Index fell 0.5% due to idiosyncratic positioning.

Managers exposed primarily to credit markets generated muted returns despite the slowdown in the economy. US investment grade spreads were relatively stable (and lower than in April) and Treasury yields continued their decline, with the net result that net long positions in investment grade credit probably gained on the month. Increases in high yield spreads basically offset the bid in Treasuries, suggesting flattish returns for net long high yield positions. The Lyxor L/S Credit Index declined 0.5%.

The Lyxor Convertible Arbitrage Index fell 0.2%. Wider spreads worked against convertible prices, but short equity positions and stable convertible valuations helped to offset this factor. The Lyxor Fixed Income Arbitrage Index declined 1.7%, with the majority of the losses occurring during the first of the month.

(press release)

www.lyxor.com

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