The Lyxor hedge fund index was up 0.2 per cent last week, taking it to an increase of 0.5 per cent in March and 1.1 per cent in the first quarter.
Most strategies were up in Q1, with event-driven outperforming and CTAs underperforming.
Within event-driven, special situations funds are leading the pack. Activists have particularly thrived, with leading players in this space up in the range of 4-5 per cent year to date. Meanwhile, market neutral L/S equity funds extended their recovery last week. The Lyxor L/S equity market neutral index is up 3.3 per cent year to date after having delivered disappointing returns last year.
Lyxor’s Cross Asset Research team writes: “From our perspective, event-driven remains a highly attractive strategy going forward. Exposures are balanced between cyclical and defensive sectors (though there has been a tilt toward adding to cyclicals lately), thus preventing any major reversal in market optimism from causing losses on Event-Driven portfolios. Then, CEO confidence is at a decade high and this is likely to translate into stronger corporate activity. Finally, several elements related to the new US administration may also prove supportive.
“Fiscal reform, if implemented in the coming months, should be supportive for sectors such as telecommunications or consumer staples (they currently pay a higher effective tax rate than other sectors) that rank high in event-driven portfolios. Meanwhile, the newly appointed chairman of the Federal Communications Commission, Ajit Pai, has repeatedly called for a light-touch, free market approach to regulation. This is likely to make the environment for event-driven managers more predictable and less exposed to deal breaks.”
