Fri, 08/03/2013 - 06:09
The Lyxor Hedge Fund Index was up 0.15 per cent in February, bringing year-to-date performance to +1.73 per cent. Eight Lyxor Strategy Indices out of 14 ended the month in positive territory, led by the Lyxor Fixed Income Arbitrage Index (+2.06 per cent), the Lyxor L/S Equity Market Neutral (+1.65 per cent) and the Lyxor L/S Equity Variable Bias Index (+1.59 per cent).
G3 dominance on world financial markets continued in February, this time raising investors’ risk aversion. Worries about the impact of fiscal restraint on the US economy and the disappointing results of the Italian elections that leave the country in a political deadlock combined to put a halt on the rally risky assets enjoyed in January. However performance was quite mixed. Eurozone equities suffered the most as recently published data kept suggesting weak fundamentals.
US equities proved resilient, backed by a solid macro news flow and Ben Bernanke’s testimony which smoothed fears of a premature shift in the Fed’s QE regime. Japanese stocks buoyed by upward revisions in earnings and hopes that the BoJ will turn to a more reflationary stance, seemed immune and advanced further.
While safe-haven sovereigns benefited from this bout of risk aversion, overall equity markets lost some ground and the MSCI World index declined 0.2 per cent in USD terms.
Managers remained constructive as evidenced by the market beta exposure they chose to hold: the median equity beta on the Lyxor platform changed little recently at about 30 per cent, a level comparable to those observed in the spring 2011, before the euro crisis.
Noticeably, again this month L/S equity market neutral funds stand out as one of the best performing strategies, which brings year-to-date performance to 6.81 per cent. Managers, that had increased leverage, took advantage of the opportunities offered by the earnings season.
The increased dispersion did offset the negative impact related to the spike in volatility and benefited to alpha generators.
Two event driven sub-strategies out of three were down in February with the Lyxor special situations and distressed securities indices losing 1.06 per cent and 0.37 per cent respectively over the month. Merger arbitrage funds proved rather resilient with an overall gain of 0.73 per cent on the related Lyxor Index. The recent resurgence in merger activity was mainly driven by industry-specific events which traded very tightly and had a limited impact on the P&L of dedicated arbitragers.
L/S credit arbitrage funds returned flat performance while their convertible arbitrage peers slightly eroded over February as the environment for credit markets turned more challenging, with spreads widening particularly in Europe. Though credit arbitragers generated positive alpha, they did not manage to fully de-correlate from the negative backdrop. Investors’ renewed appetite for high grade sovereigns and tensions on Italian debt benefited to managers in the fixed income and global macro spaces. Yet, many of the global macro funds posted losses over the month with commodities being a major detractor from performance. The Lyxor Global Macro Index declined 0.74 per cent in February.
Sliding equity and commodity markets weighted the most on long term CTAs that had turned long equity. The Lyxor CTA long term and short term indices lost in February 1.22 per cent and 0.15 per cent respectively.
“The unexpected outcome of the Italian elections has hit many hedge fund managers this month but a full-blown financial crisis is definitely not on their agenda,” says Stefan Keller, head of managed account platform research and external relations at Lyxor AM.
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