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Laxman Pai, Opalesque Asia: Although hedge funds' performance and alpha were honorable until the summer, they erased about 2.5% of alpha since June, with no turn in sight yet in September, according to Lyxor Weekly Brief.
Lyxor analysis suggested that L/S equity funds were the primary culprits and victims. In the US, managers had steadily reduced their overall net exposure and leverage since Q2. As a result, they partially missed the summer rally.
"The plunge in momentum also cost in June, only partially recovered afterward. Stock selection in their heavyweight tech, healthcare and cons. discretionary sectors didn't help enough. In Europe, funds adequately reduced their overall exposures ahead of the summer," the analysis said.
Unfortunately, many funds were too early in chasing Value stocks, which continued to correct, it said. In Asia, funds had also turned cautious before the summer. However, they were caught in their long tech and Chinese positions, which strongly underperformed main markets. Within the L/S equity space, neutral funds also suffered.
In addition to the major swings in momentum in the US and in Asia, and in value in Europe, most other factors also proved volatile. It steadily eroded their returns. Finally, many managers report elevated hedging cost as one notable factor amid declining volatility in developed markets.
Meanwhile, the diversification from CTAs and merger arbitrage was of little help this time. Both strategies were flat...................... To view our full article Click here
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