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Alternative Market Briefing

Fixed income hedge fund strategies outperform as interest rates rise

Thursday, February 16, 2017

Komfie Manalo, Opalesque Asia:

The stronger economic data and higher inflationary pressures helped push bond yield to continue outperforming in recent weeks, Lyxor Asset Management said in its latest report.

Philippe Ferreira, senior cross asset strategist at Lyxor AM, said that the rise in bond yields was more pronounced in Europe than in the U.S. across the curve, which contributed to the appreciation of the Euro vs. USD. This environment has proven supportive for risk assets in the U.S. and emerging markets.

He added, "With regards to hedge funds, their performance is flat year to date. Across strategies, global macro and CTAs are down, while fixed income arbitrage and event driven outperform. CTA and macro managers suffered on their FX bucket and in particular on their long USD positions versus the Euro. Some macro managers maintaining a preference for European equities were also penalized to the extent that the European equity market underperformed the U.S. market. Some CTAs were penalized by long energy contracts within the commodity space."

On the positive side, fixed income arbitrage and L/S credit funds outperformed. They have been supported by both alpha and beta components. The rise in bond yields has created arbitrage opportunities for fixed income arbitrageurs such as the deviation between cash and futures bond prices (the so-called basis).

Meanwhile, beta conditions were supportive for L/S cred......................

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