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James Williams, Hedgeweek

UCITS hedge funds underperform their non-UCITS rivals… Lyxor Asset Management launches Lyxor/Canyon Credit Strategy fund…

Lyxor Asset Management this week announced the lauch of the Lyxor/Canyon Credit Strategy Fund, a UCITS-compliant fund designed to provide investors with access to Canyon Capital Advisors LLC’s event driven and credit-oriented strategies across a variety of asset classes. It is the first UCITS strategy of its kind to feature on Lyxor’s Alternative UCITS Platform. 

The fund offers both diversified and differentiated exposure. With respect to diversified exposure, the fund has the ability to invest in certain special situation securities such as select liquidations, high yield and distressed corporate bonds, equities, convertibles and agency residential mortgage-backed securities.
Canyon was founded in 1990 by Joshua Friedman and Mitchell Julis and has over USD21billion in assets under management (as of 1 February 2013). Both partners commented: “In this low yield environment, it is difficult for traditional fixed income investors to find attractive return potential with appropriate levels of downside protection. However, returns remain compelling for investors with the specialized expertise and flexible mandate necessary to access less conventional areas of the markets where capital has been less able to flow. We are selectively looking across our broad-based research platform for these types of investments that are attractive in the context of a UCITS strategy.”
With USD11billion in assets under management, Lyxor’s Managed Account Platform gives access to approximately 100 managers, selected among the best in the industry. With the addition of weekly liquidity, unrivalled transparency and sophisticated monitoring features, Lyxor MAP addresses what Lyxor believes to be investors’ current key decision criteria.
The UCITS Alternative Index Global returned 0.41 per cent in March and is up 1.59 per cent in 2013. With some semblance of a trend returning to the markets it is perhaps unsurprising that the best performing strategy last month was the UAI CTA, recording gains of 1.12 per cent. Event driven and FX strategies also fared well with gains of 0.70 per cent and 0.69 per cent respectively. Long/short equity returned 0.65 per cent and is now the year’s best performing strategy, up 3.05 per cent, closely followed by UAI CTA, up 2.28 per cent YTD. The worst performing strategy last month was UAI Commodities, down -0.75 per cent to leave it down -0.36 per cent for the year. All other strategies are, encouragingly, in positive territory for 2013, apart from UAI Volatility, so far the worst performing strategy for 2013 with losses of -1.35 per cent. 
New research by EDHEC-Risk Institute has found that UCITS hedge funds, which are typically more volatile, underperform their non-UCITS hedge fund rivals on a total and risk-adjusted basis. The new research comes from the Newedge research chair on “Advanced Modelling for Alternative Investments”. The research also shows that a fund’s domicile is an important indicator of its likely performance with European-domiciled funds delivering lower risk-adjusted returns compared to funds domiciled in other regions. Perhaps this is a reflection of the more conservative investment philosophy of mainland European fund managers. The research examined a database of more than 24,000 unique hedge funds, making it one of the most comprehensive studies of the performance and risks of UCITS hedge funds and non-UCITS hedge funds in recent times.   
Noël Amenc, Director of EDHEC-Risk Institute, said: “Investors are increasingly considering hedge funds as part of their investment universe, but are also searching for access to sophisticated risk management techniques within the regulated and transparent world of mutual fund products. We are delighted that this study supported by Newedge has been able to shed light on the way in which techniques are converging in the mutual fund and hedge fund universes and we think that the research will be of particular interest to institutional investors.”
Nomura Asset Management UK Ltd this week announced that strong inflows into its Japan Strategic Value Fund have helped it to surpass USD1billion in AuM. This makes it one of the biggest funds of its kind in the sector. The yen is in weak health, having fallen 22 per cent against the US dollar since last June. And with the unprecedented decision taken by the Bank of Japan last week to engage in quantitative easing, which will double Japan’s monetary base from USD1.38trillion to USD2.76trillion in just two years, the yen is set to weaken even further. This is making conditions more favourable for Japanese equities and is perhaps one of the reasons why Nomura’s fund has enjoyed significant inflows of late. The fund was launched on 26 August 2009 and is managed out of Tokyo. It has, over that time, outperformed the TOPIX by 1.18 per cent on an annualised basis.     
ML Capital has released the latest edition of its quarterly Barometer report, which examines key trends with the alternative UCITS sector. Among the findings in this, the 10th edition, 65 per cent of all investors are looking to increase their allocations to global emerging market strategies. Investors are finding value in Japanese equities, with an impressive 93 per cent of respondents stating their intention to either hold (65.3 per cent) or increase (28.6 per cent) their allocations, representing a major shift in sentiment. Proposed government stimulus and improving consumer spending were cited as the main reasons for investors to be upbeat.
While 65 per cent of respondents plan to increase their allocations to global emerging markets, only 16 per cent said they would increase allocations to Latin America, although 73 per cent said they planned to hold their allocations. Last month, the divergence of growth trends between Brazil and Mexico was given as the main reason to divest.
Within fixed income, convertible arbitrage came out on top with respect to investor preference, with 77 per cent choosing to increase or hold their allocations. However, for the first time in 10 quarters, fixed income experienced a net reduction in investor allocations, sending a message to the markets that returns in this space are unsustainable over the long term. 
Within the event-driven space, 39 per cent of investors said they planned to increase their allocations to merger arbitrage (for the third consecutive quarter).

Commenting on the highlights of the latest Barometer, John Lowry, Chairman of ML Capital said: "Sentiment has been very clear; investors have begun to make a big return to equities and intend to continue to do so in the coming quarter, although seemingly some are finding it difficult to decide which region to allocate. Our quarterly MontLake Barometer revealed that 65 per cent of all respondents indicated an allocation increase to Global Emerging strategies and similarly 51 per cent suggested further allocations into Global Long/Short. It’s clear to all that there still remains an air of diffidence amongst the majority of investors, even as financial markets begin to normalise somewhat.”

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