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Laxman Pai, Opalesque Asia:

Managed Futures remains the best performing alternative strategy year-to-date, up 9.2% according to the estimates, Lyxor said in its weekly brief.

But after a massive rally up to end-August, the hangover came with a sharp rise in bond yields in the past couple of months.

The trend reversal in fixed income and the rally in stock prices over the past three months translated into a significant rebalancing of CTA portfolios, from bonds to equities. CTAs remain long both equity and fixed income, but the gap between both allocations has narrowed. Meanwhile, the negative correlation between those asset classes implies that CTA portfolios are adequately diversified currently.

"Overall, we find CTA portfolios adequately balanced and the strategy has regained appeal, in our view. Back in July, we suggested to take profits on CTAs (link) and rebalance towards Global Macro strategies. At present, we suggest reducing allocations to Market Neutral L/S strategies, which were hurt in October by the momentum reversal in stock markets, due to the rotation in favor of value stocks" Lyxor said.

With regard to the remaining alternative strategies, Special Situations and Directional L/S have outperformed since the beginning of November, on the back of the buoyant returns posted by risk assets.

"On a negative note, L/S Credit, CTAs, and Merger Arbitrage strategies have underperformed. We remain constructive on the latter despite its underperformance y......................

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