Index

CTAs in a strong recovery mode in November

Ten out of 13 Lyxor Indices ended the month of November in positive territory, led by the CTA Long Term Index (+4.2 per cent), the L/S Equity Market Neutral Index (+1.7 per cent) and the CTA Short Term Index (+1.6 per cent).

The Lyxor Hedge Fund Index posted a positive performance close to one per cent in November (+5.8 per cent YTD).
 
Financial markets remained conducive to hedge funds in November. Macro data published over the month was mixed but monetary policy kept erring on the dovish side particularly in Europe where the ECB cut the refi rate. The strong provision of liquidity fuelled the rise in equity and credit markets and allowed a further drop in correlations between (and within) asset classes. Hedge funds took advantage of the rising opportunity set to add alpha to their beta returns, showing solid performances. The Lyxor Hedge Fund index gained 0.6 per cent over the period and is up 5.5 per cent year-to-date.
 
CTAs performed the best in November, engaging a strong recovery thanks to the equity uptrend and adequate positioning in FX (long Euro, short JPY) and commodities (short gold). It is noticeable that long term trend followers continue to significantly outperform pattern recognition strategies.
 
The L/S Equity market neutral sub-strategy was the second best performer as the drop in correlations within US and European equities helped neutral managers benefiting from more opportunities in relative value trades. Long biased strategies also rallied (+1.5 per cent), supported by US funds exposures to mid cap names, consumer and financial sectors. Large exposures to the communication sector, subject to intense M&A activity, provided additional arbitrage opportunities. Finally, variable biased managers also performed well (+1.2 per cent). They kept net exposures relatively low (<40 per cent) and gross exposure relatively high (>200 per cent), a sign of strong conviction on both the long and short books.
 
Event driven strategies continued to deliver solid returns with the Lyxor Special Situations Index and the Lyxor Merger Arbitrage Index up one per cent and 0.7 per cent, respectively. Several idiosyncratic catalysts played out positively. Merger Arbitrage funds benefited from a spread tightening in several transactions and from their more directional special situations portfolios.
 
Long/Short Credit Arbitrage posted positive gains (+0.4 per cent) in November mainly on the back of tightening high yield spreads in Europe while they widened somewhat in the US Cash credit markets outperformed derivatives in November. Valuation in credit market remained stretched and dispersion anaemic, which prompted managers to keep gross exposure at more than 250 per cent to boost performance from pair trading strategies.
 
The Convertible Bond Arbitrage strategy was virtually flat amid changing market conditions. The primary market was extremely active with about USD20bn issuance over the month. Though an active primary market is usually favourable, the massive issuance weighed on valuation and raised concern about investors’ absorption capacity. Convertibles lost some ground relative to their underlying shares.
 
Macro funds underperformed with the Lyxor Global Macro Index declining 0.8 per cent in November. Profitable long positions on equity and fixed income were more than offset by detrimental bets in the forex and commodity space. Short bets on euro suffered from the currency strength while the continued sell-off in gold weighed on long positions.
 
“Long term trend followers significantly outperformed in November as both the upward trend in risky assets and currency movements were supportive,” says Philippe Ferreira, head of research and external relations at Lyxor Managed Account Platform. 

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