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Alternative Market Briefing

CTAs and L/S equity drag down hedge funds in early March

Tuesday, March 15, 2016

Komfie Manalo, Opalesque Asia:

The Lyxor Hedge Fund Index declined 0.6% as of end 08 March after being dragged down by CTAs and L/S equity downwards on the back of the short exposure to commodities. CTAs outperformed when the market was in risk-off mode, but they have been hurt in March by the rebound in commodity prices. Their shorts on energy caused losses, despite the fact that they have reduced the positioning on such contracts lately.

On the positive side, Lyxor AM said the recent momentum of credit and fixed income arbitrage funds (+0.7% last week) is likely to be continue, supported by the credit rally. The strategy should also be supported by the European Central Bank’s (ECB) recent easing measures.

Philippe Ferreira, a senior strategist at Lyxor AM, commented, "As we approach the end of the first quarter, a rotation in the performance of hedge fund strategies is starting to shape up. CTAs, which were the stellar performers during the first two months of 2016, gave back some gains recently. In parallel, event driven and L/S credit, which suffered previously, are up month to date."

Lyxor believes that the recent momentum in L/S Credit is likely to be sustained going forward. Ferreira said that Lyxor has upgraded the strategy last week on the back of attractive credit spreads and supportive conditions for alpha generation (higher dispersion of returns, between and within credit sectors, in the U.S. notably). The monetary easing measures......................

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