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Komfie Manalo, Opalesque Asia:

The first week of December saw sector rotations that caused headwinds for hedge funds. The correction in IT stocks saw a momentum reversal that impacted L/S equity strategies negatively, with the Lyxor L/S Equity Broad Index falling -1.3% from 28 November to 05 December (+6.4% YTD).

Across the industry, the Lyxor Hedge Fund Index fell -1% during the same period but still maintained a modest 0.3% gains during November (+3.1% YTD). Market neutral L/S, which tends to be sensitive to the momentum risk factor, was not left unscathed by sector rotations. Overall, only one strategy was in positive territory, with the Fixed Income Arbitrage Index up 0.1% (3.5% YTD). On a positive note, Event-driven was fairly resilient, down -0.3%, while Merger Arbitrage managed to outperform, up +0.2%.

Philippe Ferreira, Lyxor Asset Management senior strategist, commented, "Variable biased funds were hit by sector rotations out of tech on their long portfolio books. On the other hand, neutral funds suffered from their aggressive positions through long momentum and short low beta and quality stocks. By contrast, event-driven funds were resilient. Merger arbitrage funds outperformed as they benefitted from the tightening of deal spreads such as Time Warner / AT&T and Regal Entertainment / Cineworld."

U.S. tax reform hurt IT sector

The S&P 500 Information Technology Index was down -4.1% in a week ......................

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