Sun, Jul 24, 2016
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. Opalesque Exclusive: California-based manager launches long/short equity hedge fund with unique algorithm[more]

    Benedicte Gravrand, Opalesque London for New Managers: SJL Capital LLC, an investment advisory firm based in California, has launched its maiden fund, the SJL MarketDNA Hedge Fund LP. The fund, which began trading

  2. Manny Roman to move from Man to Pimco[more]

    Benedicte Gravrand, Opalesque London: Emmanuel (Manny) Roman, an investment world veteran, has been hired by PIMCO, the large US bond fund house, as chief executive officer. PIMCO's current CEO Douglas Hodge will assume a new role as managing director and senior advisor when Roman joins P

  3. HFR: Hedge funds post strong gains in mid-July as markets recover from Brexit losses[more]

    Komfie Manalo, Opalesque Asia: Hedge funds posted strong gains through mid-July as the equity markets continued the recovery from Brexit losses. The HFRX Market Directional Index gained +2.17% (+4.22% YTD) and the HFRX Global Hedge Fund Index gained +1.03% through mid-month (+0.19%

  4. News Briefs - Carlyle goes on trial for a financial-crisis meltdown, Private equity and venture capital outperformed public markets in 2015, Pippa Middleton gets engaged to hedge fund manager James Matthews[more]

    Carlyle goes on trial for a financial-crisis meltdown Carlyle Group co-founder Bill Conway was in court on this small island last week recounting one of the most bruising episodes in his private-equity firm’s history: the 2008 collapse of mortgage-bond fund Carlyle Capital Corp. Carlyle

  5. …And Finally - Two men fall off cliff playing Pokemon Go[more]

    From BizarreNews.com: Two men who fell from a seaside cliff north of San Diego told authorities they became distracted while playing augmented reality game Pokemon Go. Encinitas fire Battalion Chief Robbie Ford said one of the men fell about 50 feet down the bluff in Encinitas while the other man fe