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Alternative Market Briefing

Merger Arbitrage and L/S Credit stay afloat in October

Friday, November 06, 2020

Laxman Pai, Opalesque Asia:

Hedge funds were down -1% last week as market conditions took a turn for the worse. This brought the monthly performance of the Global Lyxor Peer Group in October to -0.5% (vs. -3.0% for the MSCI World).

Strategies with a higher market beta such as Special Situations and Directional L/S Equity underperformed (-0.8% and -0.6% respectively in October), while CTAs and Market Neutral L/S also posted negative returns (-1.2% and -0.8%), said Lyxor.

Merger Arbitrage and L/S Credit managed to post positive returns, it said.

"Merger Arbitrage outperformed with flat returns last week and positive performance for the full month (+0.7%). Strategies with a higher market beta such as Special Situations and Directional L/S Equity underperformed (-2.3% and -1.9% resp. last week), while CTAs and Market Neutral L/S also posted negative returns (-1.1% and -0.5% resp.)," the report highlighted.

Merger Arbitrage has benefitted from attractive deal spreads, renewed M&A volumes in the U.S., and from its power of diversification.

"We estimate its equity market beta at 3% now, below the 5-year average (8%). This implies a 10% fall in the MSCI World would lead to a -0.3% fall in returns," Lyxor said.

For the full month, CTAs underperformed, down -1.2%, as their long stance on equities and U.S. bonds suffered headwinds. Finally, within Global Macro, Systematic strategies underperformed Discretionary ones.

U.S. M&A activity has remained elevated ......................

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