Wed, 14/08/2013 - 06:40
Eleven Lyxor Strategy Indices out of 14 ended the month of July in positive territory.
They were led by the L/S Equity - Long Bias (+3.08 per cent), the Event Driven - Special Situation Index (+2.63 per cent) and the Event Driven - Distressed Index (+2.09 per cent).
The Lyxor Hedge Fund Index posted a positive performance of +1.32 per cent in July (+3.19 per cent YTD).
Financial assets recovered after the painful sell-off in June and hedge funds posted solid results in July. The robust performance was a welcome reversal from the 3.6 per cent loss hedge funds suffered last month, which marked one of the toughest months since 2011. Several factors contributed to a more normalised trading environment, which helped performance. These include a stabilisation of US rates, support for growth from China’s authorities and solid earnings in the US vs. expectations. Hedge funds cut beta to a year low of 18 end of June (median equity beta of the Lyxor platform). As markets stabilised and hedge funds became more bullish, beta increased to 22 by mid-July. Despite the increase, hedge fund beta is still below the 36 per cent reached in May, suggesting a relative degree of caution.
Long/Short Equity funds gained thanks to both positive beta exposure to the market and increased dispersion among stocks and indexes. L/S Equity Long Bias was the best category performer among Lyxor strategies in July, up 3.08 per cent while L/S Equity Variable funds gained 1.95 per cent. Market Neutral and Statistical Arbitrage had more mixed performances with -1.02 per cent and 0.92 per cent respectively. During the month, funds on the Lyxor platform marginally decreased their net exposure to 55 per cent for long biased funds and 45 per cent for variable biased ones. On a sector level, US equity managers enlarged their exposures to Financials and Technology, but reduced Consumer Staples and Communications weights. The increase in Financials exposure follows strong 2Q results where the banks are benefiting from solid trading activity and a continued rebound in housing prices. On the other side of Atlantic, managers increased exposure only to Consumer Cyclicals and Financials.
Event driven strategies did well with Special Situations up 2.63 per cent and Distressed up 2.09 per cent. Merger Arbitrage strategy was also up 1.57 per cent. These strategies typically perform well when the risk environment is calm and the reduction of risk premium in July helped to create a backdrop to generate positive returns. Equity and Credit net exposure remained stable for Special Situations.
L/S Credit Arbitrage reported a solid gain of 1.64 per cent. Credit rebounded in July but lagged the rebound in equity markets. Outflows from high yield funds and ETF’s last month reversed in July helping to provide a bid to credit. Convertible Bond Arbitrage performed well with a 1.85 per cent gain though bond issuance has disappointed the expectation of many managers who have predicted a pick up.
CTA funds bounced back after a challenging June. Short term models advanced 0.66 per cent, while long term strategies registered slight losses of 0.72 per cent. The correlation of equities and bonds, which was a large headwind for performance last month, eased in July. CTA managers cut the risk allocation to bonds but kept their equity allocation roughly flat. Most funds benefited from their long equity positions but suffered from their generally long positions on the USD against EUR and JPY. Energy was also a detractor to performance as the rise in oil prices hurt many CTAs.
Global macro managers had a positive month with an overall gain of 1.24 per cent. Most funds benefited from the recovery in equity markets but gains were eroded by short positions on JPY, AUD and EUR. Disparate positions in the commodity space yielded diverse returns.
“Markets are faced with a changing monetary landscape. We view the Fed’s shifting policy as part of a positive normalization process that should reach dispersion and correlation levels, which means more opportunities to monetize for hedge funds,” says Jeanne Asseraf-Bitton, head of global cross asset research at Lyxor AM.
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