Thu, Nov 27, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Lyxor optimistic for hedge fund strategies in 2014

Monday, January 27, 2014
Opalesque Industry Update - >> The global economy finished on solid footing in 2013 and growth is set to maintain a healthy pace in 2014. Demand in the developed economies is recovering steadily aided by supportive policies, which have helped smooth the deleveraging cycle. Growth in the US is leading other regions and is helped by increased house prices, investment growth and consumer and business confidence. Inflation remains muted in most developed countries allowing central banks to run accommodative policy despite a pick-up in growth.

>> An environment with moderate growth, low inflation and high liquidity has historically benefitted equities more than other assets. Global equities returned about 25% in 2013 driven by earnings growth and P/E multiple expansion.

>> Equities are the most overweight asset class in our rankings for 2014. While we do not expect a repeat of the strong performance of last year, equities will likely generate reasonable returns in 2014 in-line with earnings growth. Multiple’s expansion is possible given the inflation environment and potential flows into equities, but it should vary across geographies. We forecast that government bond yields will drift higher throughout the year driven by better growth, but the improving fundamentals of companies should more than offset a modest rise in rates. In credit, spreads are near all time lows and the asset class doesn’t offer significant upside.

>> Economies and markets are transitioning from liquidity to growth. The shift should benefit hedge funds that are positioned to play themes related to the more mature phase of the cycle.

>> Among Alternative Strategies, our constructive view leads us toward those focusing on equity markets. However in contrast to last year, we believe that stock selection and relative value strategies will offer more attractive opportunities. In 2013, only 10% of the stocks in the S&P 500 had a negative return, which highlights the difficulty for hedge funds to find attractive shorts. Our favorite segment of the L/S equity universe is the Variable Bias managers who can generate returns from stock picking on the long and short side.

>> Merger Arbitrage should do well next year as a resurgence of M&A activity from late 2013 is sustained in 2014. Admittedly, the backdrop for M&A has been attractive for several years but receding macro risks and rising asset prices will probably push companies to spend the cash on their balance sheet. We favor Special Situation funds that can enact change through activism related to capital structure and business strategy.

>> Lastly, we are underweight L/S Credit and CTA funds. Opportunities for bottom-up credit selection are limited both on the long and short side. Within the space, we prefer funds focused on Structured Credit, a market segment enjoying improving perspectives. CTA returns have been too inconsistent over the past several quarters and we wait for better trends to reengage the strategy.

>> “The environment for hedge funds to generate relative value returns is more attractive than it has been in many year and 2014 should be a bright year for the industry” says Jeanne Asseraf-Bitton, Head of Global Cross Asset Research.


References:
Lyxor AM, Cross Asset Research, First Quarter 2014, www.lyxor.com

Bg

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - George Soros puts $500m of his money on Bill Gross, Soros, Paulson backed Hispania Activos mulls Realia takeover, Ex-Credit Suisse trader’s hedge fund sees yen shorts as crowded, Hedge hunters double default-swaps as views split, Large hedge fund positions come under pressure, Vikram Pandit's fund picks 50% stake in JM Financial's realty lending arm for $87m[more]

    George Soros puts $500m of his money on Bill Gross From WSJ.com: Before Bill Gross was fully settled in at his new firm, Janus Capital Group Inc., he received an unlikely visit from the chief investment officer of famed investor George Soros ’s firm, according to a person familiar with t

  2. Unlucky Paulson & Co. rebrands $1.6bn Recovery Fund after 13% drop[more]

    From Businessweek.com: A maturing U.S. economic recovery is prompting Paulson & Co. to change course. The $19 billion hedge fund firm, led by billionaire John Paulson, told investors on a conference call this month that the Paulson Recovery Fund will be renamed Paulson Special Situations Fund on Jan

  3. Europe - Hedge funds face exit tax as Iceland central bank discusses plan[more]

    From Bloomberg.com: Hedge funds and other creditors with claims against Iceland’s failed banks face an exit tax as the island looks for ways to unwind capital controls without hurting the economy. The government targets having a plan it can present by year-end that would map out how Iceland will sca

  4. Opalesque Exclusive: Risk management emerges as a competitive focus area for hedge funds[more]

    Bailey McCann, Opalesque New York: Risk management has always been a core component of any trading strategy, as well as a critical part of business management. However, as macreconomic weakness persists, and alpha becomes increasingly hard to generate, risk management as emerged as a more promin

  5. Gross: Inflation is required to pay for prior inflation[more]

    Benedicte Gravrand, Opalesque Geneva: As inflation rises, every dollar will buy a smaller percentage of a good. While deflation will mean a decrease in the general price level of goods and services. These two economic conditions are both in the waiting room. The consensus would like the former to