Event-driven hedge fund performance has continued to move upwards over recent weeks in a context where M&A activity has remained strong since the beginning of the year, especially in the US, according to Lyxor’s latest Hedge Fund Weekly Brief.
Lyxor writes that according to Dealogic, global M&A activity has reached USD490 billion year to date (YTD) as of 3 March.
Although global M&A volumes are slightly down compared to the same period last year (-7 per cent), this is mainly related to lower dealmaking in Asia (-36 per cent, including Japan).
M&A volumes are up 6 per cent YTD in the US, to USD 221 billion, led by the oil & gas and healthcare sectors (up 300 per cent and 62 per cent respectively).
Robust M&A activity in the US is supportive for event driven managers since they are predominately exposed to the region. The largest proposed deal so far this year is the USD31 billion acquisition of Actelion by Johnson & Johnson, which ranks first in merger arbitrage portfolios.
The Lyxor Event-Driven index is now up for the fifth consecutive week in a row, and has outperformed other hedge fund strategies on a year to date basis. This is in line with Lyxor’s expectations to the extent that it has had the strategy at overweight over recent quarters. Going forward, Lyxor reaffirms its conviction that the strategy is due to perform well this year. In particular, tax reform in the US should translate into higher corporate activity that would prove supportive for the strategy.
With regards to other hedge fund strategies, February was a strong month for CTAs. They outperformed on the back of the rally in risk assets and commodities. On a negative note, some fixed income managers underperformed for the full month of February. More recently, global macro underperformed last week due in part to their short positions on European bonds as the Euro rebounded vs. the US Dollar.
