The Lyxor Global Hedge Fund index, an investable index based on Lyxor’s hedge fund platform, was down one per cent in October, bringing year-to-date performance to +4.4 per cent.
Lyxor says it was a difficult start to the final quarter for alternative strategies. Risk appetite decreased sharply during the last days of the month as macroeconomic data came in softer than expected.
Over most of the period, equity markets rallied and credit spreads tightened while the US dollar DXY index hit a fresh low. These trends reversed dramatically at the end of the month, and this was enough to offset prior gains.
Long/short equity managers were hit by the broad market reversal, with variable bias managers being most hit (-1.8 per cent). Long bias had more modest losses (-1.4 per cent). Market neutral managers and statistical arbitrage were the outliers as they posted +0.4 per cent and +0.8 per cent, respectively.
Event driven managers had a mixed performance in October. Merger arbitrage managers were slightly down (-0.3 per cent) while special situations managers gave back some of their previous gains (-2.2 per cent).
Distressed managers were up 1.2 per cent, reflecting their net short positioning on equities and monetizing on narrowing credit spreads. Merger arbitrage managers were able to increase net exposures somewhat as several deals were completed. This was confirmation that these managers have become more reactive and more trading oriented than before the crisis. Special situations managers have taken on more risk (both on equity and credit exposure); these positions were painful at the end of the month.
Long-term CTAs posted 2.8 per cent losses, and short-term CTAs were down one per cent. Global equity markets trended upward strongly, and many CTAs captured these gains initially but were badly hit during the final trading days.
Global macro funds were flat (-0.2 per cent); commodity markets saved the day as the price of oil enjoyed an intra-month rise of close to 20 per cent. Global macro funds with substantial bearish positions on the US dollar continued to benefit from the persistent decline in its value.
Bond related strategies posted positive performances. Convertible and volatility arbitrage managers continued their impressive run, albeit more moderate, with a 0.4 per cent gain. Long/short credit funds benefited from bond spread tightening dynamics, with a 4.5 per cent gain. Fixed income arbitrage managers were also able to show gains, posting a 1.3 per cent increase on the month.
