The Lyxor Hedge Fund Index is still in positive territory at the end of June in spite of a slightly negative performance of -0.47 per cent during that month (+0.49 per cent in 2012).
Seven Lyxor Strategy Indices out of 14 ended the month in positive territory, led by Lyxor Fixed Income Arbitrage (+1.97 per cent) and Lyxor L/S Equity Long Bias (+1.95 per cent).
Amid volatility above its 2012 average, hedge fund strategies posted mixed performance in June. Over the last two months however, the outperformance of the hedge fund space over world equity markets has been significant. The MSCI World Index dropped by 4.5 per cent while the Lyxor Hedge Fund Index fell by 1 per cent.
Hedge Fund’s resilience can be traced back to historically low net exposure on equities. From an aggregated perspective, net equity exposures across all strategies are flirting with the lows reached beginning of 2009. As a consequence, volatility in Hedge fund returns is also close to historical lows, both from an absolute and a relative (vs. equity markets) standpoint. Hedge funds thus continue to deliver an attractive risk adjusted returns profile.
In June, credit and fixed income related strategies again offered decorrelated returns. Even though spreads continued to widen, L/S credit funds were up by 0.9 per cent on the month. In addition to still seductive carry opportunities, slow growth in the US and a recessionary environment in Europe, are progressively opening up opportunities on the short side. The story also remains supportive for fixed income related managers, up 2.0 per cent on the month (5.6 per cent YTD).
In the event driven space, credit related themes also paid off. Distressed managers gained 0.7 per cent this month, while more equity-related special situations managers declined by 0.8 per cent. Inside the segment, specific managers suffered from a sharp sell off on gold. Merger arbitrage managers recorded a positive performance of 0.3 per cent. Spreads, which had sharply widened in May, started to converge in June.
In spite of a conservative risk budget, L/S equity managers had mixed performance in June. Long bias managers were up two per cent and variable bias manages lost one per cent. Sector exposures were the main performance drivers here: largest exposures in these strategies are related to industrial and non-cyclical consumer themes.
Directional trading funds, which had strongly performed in May amidst down markets, gave back some of their gains in June. Long term models lost 3.7 per cent, long treasuries and slightly net short equity positions explaining these losses. On the other hand, short term models managed to turn positions and protected last month gains. The strategy finished the month with a 1.1 per cent negative performance.
Equity directionality of the hedge fund industry has started to pick up gradually in recent weeks.
“We register that net exposures of L/S equity managers to financials is creeping up gradually since November 2011. Risk, therefore, has recently been added to portfolios through the latter rather than through cyclicals,” says Stefan Keller, head of managed account platform research and external relations at Lyxor AM.
