The Lyxor Global Hedge Fund index was up 0.7 per cent in July, lifting year-to-date gains to 0.8 per cent.
Equity markets delivered solid gains in July, as major Western indexes posted gains in the six to seven per cent range.
Investors appeared pleased with the European stress test results and strong US corporate earnings. This provided a tailwind for L/S equity managers, especially if they were exposed to high-performing sectors such as technology and industrials.
Japanese exporters and markets were, however, weighed down by the strong yen.
Many equity managers have retained a relatively low net exposure to markets, however, and a significant portion of their gains is due to judicious stock selection. The Lyxor L/S Equity Long Bias Index gained 2.2 per cent on the month, while the Variable Bias Index gained just 0.3 per cent.
Structurally neutral managers continue to struggle with record-high correlations (and correspondingly record low dispersion) among single stock returns. The Lyxor L/S Equity Market Neutral Index gained 0.2 per cent while the Statistical Arbitrage Index was flat.
Many CTA and global macro managers lost ground in July. The Lyxor CTA Long-Term Index declined 1.4 per cent on the month, and the Short-Term Index fell 1.0 per cent. The Lyxor Global Macro Index declined 0.4 per cent.
The popular short euro positioning had been a winner for much of the year, but the EUR gained approximately six per cent versus the USD over the month, generating losses for many.
The rise in equity markets also detracted from some CTA performances, as many medium-term CTAs had previously cut long equity exposures and had, in many cases, moved to net short exposures. Bond exposures did not generally provide gains, either.
Although the USD lost value versus the euro, it gained versus gold. Managers with long gold exposures therefore suffered as deflation fears apparently trumped inflation fears.
Within the event driven space, merger arbitrage managers continued their gains, rising 1.5 per cent in July and 2.9 per cent year-to-date. General spread tightening was aided by increased offer prices for some deals. Many special situations managers have substantial allocations to financial names, and the strong performance by this sector gave them a boost. Distressed managers also benefited.
