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The rising uncertainty related to the U.S. fiscal cliff issue focused investors’ attention in November. Risky assets started the month on the wrong foot amid mounting fears over policy issues but rumors of progress on the fiscal cliff negotiations, rising expectations of a solution for Greece (that materialized on 27 November) and to a lesser extent the smooth leadership transition in China helped equity markets recover the lost ground. Hedge fund managers navigated well in this context.

Managers in the fixed-income space continued to perform well, amid further gains in sovereign and credit bonds. The Lyxor Fixed Income Arbitrage and L/S Credit Arbitrage indices were up respectively 1.2% and 1% in November. Managers succeeded in adding value, as dispersion increased, creating trading opportunities (US MBS, European sovereign debt…). Also, the overall volatility backdrop remained supportive. Yearto- date, these two strategies clearly outperform their peers, the Fixed Income Index yielding 10.1%, and the Credit Arbitrage Index 9.2%. The Lyxor Convertible bond Arbitrage Index also performed nicely (+0.3 %) mainly driven by specific stories, and is up 3.9 % year-to-date.

Within the event driven strategies, funds focused on merger arbitrage (Lyxor Merger Arbitrage Index) returned 0.7% over the month. Positive drivers included the improvement in business confidence and a sizeable increase in merger activity - the number of deals was up roughly 40% in the U.S. over the past three months. The Lyxor Distressed Securities index and the Lyxor Special Situations Index were almost flat this month (+ 0.1%).

L/S equity strategies also performed well this month. Variable bias managers who opportunistically increased net equity exposure and were able to generate alpha on stock selection started to catch up on underperformance. The L/S Equity Variable bias Index gained 0.9% but is still down -0.6% year-todate. Other strategies posted positive performances too: Long bias (+0.5%), Statistical Arbitrage (+0.7%), Market Neutral (+0.9%).

The economic news flow confirmed the encouraging data seen during October, with growing signs that the global industrial cycle has bottomed, and that activity is strengthening in the U.S. and in Asia. Despite these receding economic risks and the ample liquidity provided by Central Banks, CTA and Global Macro managers as a whole recorded disappointing performances. The lack of persistent trends and elevated political uncertainties continued to undermine performance. The Lyxor CTA Short Term lost -1.8% and CTA Long Term Indices was almost flat (+0.1%) during the period under review. The Lyxor Global Macro Index appreciated (+0.5%) thanks to rewarding bets on commodities and currencies at the end of the month.

“We note a broadening of strategies participating in rising markets. The top decile of funds on the Lyxor MAP are all up in double digit territory, and they belong to six different strategies. This is a remarkable change compared to last year, when computer-driven systems dominated the rankings.” says Stefan Keller, Head of Managed Account Platform Research & External Relations at Lyxor AM.

From: LYXOR FLASH, The Alternative Investment Industry Barometer, 7th Dec. 2012

Lyxor Asset Management www.lyxor.com

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