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Komfie Manalo, Opalesque Asia: Hedge funds were down in sync with the market downturn last week, according to Lyxor Asset Management's latest Weekly Briefing. It added that CTAs underperformed due to their long exposures to U.S. equities and their long EUR and GBP vs. USD. The rise in oil prices helped alleviate some losses.
Jean Baptiste Berthon, senior strategist at Lyxor AM stated, "L/S equity were also on the downside. U.S. and EM funds were the main detractors in line with their underlying benchmarks. U.S. managers particularly suffered from sector rotations. The widening in M&A deal spreads including NXP vs. Qualcomm hit merger arbitrageurs. Market neutral and relative value players were resilient."
He explained that CTAs and the U.S. long-biased managers were the most affected by current uncertainties. Merger funds also took a hit from bond yields and several deals' unfavorable developments. The other strategies were resilient. Since February, merger spreads widened meaningfully.
According to Berthon, the rising bond yields, which is a key component of merger returns, contributed to about half of the widening. A hike of 50bp in Libor implies about a 150bp widening in annualized spreads. A second key factor was increased regulatory and deals' duration uncertainty, in the U.S. but also for operations related to China one way or the other. He went on to say that an obvious example was the NXP Semiconductors/Q...................... To view our full article Click here
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