Sat, Aug 23, 2014
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

Lyxor Hedge Fund Indices up 1.15% in December (+7.0% YTD)

Wednesday, January 08, 2014
Opalesque Industry Update - Decent finish for the Lyxor Hedge Fund Indices, up 1.15% in December and closing the year up +7.0%. 2013, the year of monetary policy players, crowned one winning bet: Long Equity in developed countries and Short both gold and rates. Neutral on all other asset classes. >> Unsurprisingly, strategies playing an equity beta and restructuring themes offered the best returns, in particular L/S Equity and Event Driven funds. Conversely, L/S Credit and Fixed Income suffered from their trading fields falling out of favor.

CTAs and Global Macro limited the damage thanks to raising their equity exposure over the year. Portfolio rotation toward equity was well achieved by year-end, allowing most strategies to benefit from the latest leg up in December. Witness: the average median equity beta on the Lyxor platform rose from around 20% in early 2013 to 35% recently.

Long bias L/S Equity strategies outperformed. Managers successfully timed markets before the summer when talks about Fed tapering spurred them to noticeably increase net exposures (from 55 to 75%), while controlling risk through reduced gross exposure. Variable bias funds got more conservative by then until September (net exposure dropping from 80 to 30%), when they started rebuilding net exposure.

Market neutral funds yielded substantial returns boosted by the return of dispersion. Overall, equity funds adequately adjusted their sector allocation, combining high dividend stocks with cyclicals selectively picked to favor restructuring themes and short-cycle businesses. Besides they wisely avoided commodity & EM related exposures. Japanese staged solid gains amid central bank driven asset reflation.

Event Driven funds also posted strong returns in 2013 and are well positioned at this stage of the cycle. Indeed they continued to exploit turnarounds and advanced distressed situations inherited from the financial crisis. Besides, managers enjoyed a growing pool of corporate operations from cash rich companies confronted with limited internal growth prospects. In this supportive environment – economy gaining traction, ample liquidity and low default risk - event driven funds thrived most of the year. Event driven funds generally maintained their gross and net exposures (around 130% and 45% respectively) and kept their strong directionality. Merger Arbitrage funds clearly shaved off net exposure, expressing some concerns as to the valuation levels reached by year end.

L/S Credit and Fixed Income Arbitrage funds played their cards nicely in 2013 given the challenging backdrop. With adverse rate and FX trends on the one hand and valuation getting stretched in mainstream credit on the other hand, those making out fine have focused on credit stakes closest to an equity play (high yield and convertibles). European credit funds benefited from a more supportive environment and took full advantage of periphery convergence plays. A dovish Fed's tackling of QE tapering spurred managers to rebuild both gross and net exposures (up to 275% and 65% respectively in December), suggesting more room for credit plays.

Discretionary and systematic trend players struggled in 2013. In the current transition from an early to a mid cycle, market turns are common and tricky to deal with. In addition, a load of surprises stemming from the imbalances tackled during the crisis, altered the expected cross asset scenarios. Market turns, valuation anomalies and unusual correlations were difficult to time and capture for trends players. They ended 2013 flat on average, limiting damage thanks to their equity position. Long Term CTAs (up +4.2% this year) and Global Macro (flat in 2013) raised net equity exposure from 1 to 5.5% and from 10 to 50% over the year, respectively. Global Macro also played G3 central bank policy divergences by year end, as witnessed by their gross exposure to short-term rates increased to 110%.

Hedge funds successfully navigated the specific turn of events unfolding in 2013 and finished on a positive tone boosted by the equity rally. Over the year, major valuation anomalies faded away and systemic risk receded, clearing the way for healthier asset dispersion and a switch to more idiosyncratic pricing. We expect 2014 to be a transition year from liquidity to growth opening a large set of opportunities for relative value. “A supportive macro backdrop, fundamentals back in the equation, and the return of alpha could turn next year into a sweet spot for hedge funds.” says Jean-Marc Stenger, Chief Investment Officer for Alternative Investments at Lyxor AM.

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. Institutions – Texas Employees sets 2015 tactical plan for alternatives, CalPERS' real estate consultant cautions the pension fund's investment committee, Why Sunsuper likes hedge funds[more]

    Texas Employees sets 2015 tactical plan for alternatives From PIOnline.com: Texas Employees Retirement System will invest in up to four new hedge funds in the next fiscal year, which begins Sept. 1. Trustees approved 2015 tactical investment plans for the hedge fund, private equity and in

  2. Private equity follows hedge funds into reinsurance for long-term capital[more]

    From Artemis.bm: It’s not just hedge funds that are entering the insurance and reinsurance market in search of so-called long-term capital to put to work in their strategies, private equity firms targeting the space are also seeking opportunities to add assets under management. The entry of large pr

  3. North America – New York City’s next hot neighborhoods targeted with property funds[more]

    From Bloomberg.com: New York’s real estate world is filled with tales of ordinary people who bought property decades ago and saw values skyrocket to the millions. Seth Weissman is seeking investors to get in early on the next hot neighborhoods. The veteran of Goldman Sachs Group Inc. and hedge

  4. Investing – George Soros bets $2bn on stock market collapse, Warren Buffett's Berkshire reveals Charter stake, cuts DirecTV, Hedge funds lusting to cash out of MGM, Top hedge fund managers are buying Ally Financial, Hedge funds dumped 5m Herbalife shares in Q2, Paulson & Co hedge fund ups Puerto Rico real estate bet, Netflix Inc., Citigroup Inc, Google Inc are top new picks in Tiger Management’s 13F[more]

    George Soros bets $2bn on stock market collapse From Newsmax.com: Billionaire investor George Soros has increased his financial bet that U.S. stocks will collapse to more than $2 billion. The legendary hedge fund manager has been raising his negative bet on the Standard & Poor's 500 Inde

  5. Investors now net short S&P500 and increased Russell shorts, technicals suggest further selling[more]

    Komfie Manalo, Opalesque Asia: Market Neutral funds increased their market exposure to -1% net short from -6% net short last week, according to Bank of America Merrill Lynch’s Hedge Fund Monitor. The report also added