In a volatile market environment, hedge funds have exhibited high performance dispersion since the end of April, both at the strategy and the fund level. This proved true again last week, with the Lyxor Hedge Fund index posting a flat performance, up 0.06%, but hiding significant discrepancies behind the scenes.
Head of Research – Managed Account Platform
Click here to download the full report
In a volatile market environment, hedge funds have exhibited high performance dispersion since the end of April, both at the strategy and the fund level. This proved true again last week, with the Lyxor Hedge Fund index posting a flat performance, up 0.06%, but hiding significant discrepancies behind the scenes.
On the one hand, directional strategies with diversified bets on all asset classes were hurt by the rise in volatility and violent trend reversals. Currencies and fixed income markets have experienced strong moves lately, with a reversal of themes prevalent in the first quarter. This was primarily the result of technical retracements on crowded trades, like short Euro or long bonds. One of the more salient examples was oil prices sharply rebounding, without major changes in fundamentals or geopolitical risks, driven partly by a lower USD but mainly by short-term trading. On the fundamental side, lower growth data in the US, the recent strong economic momentum in Europe and higher inflation expectations resulted in large downside moves on European bonds. Global macro funds were hurt on pure technical moves (which were fuelled partly by CTAs) but managed to gain on some of their fundamental bets.
On the other hand, hedge funds with equity or credit positions, and relying mainly on their sector bets to provide alpha, ended the week positive. As a whole, equity markets proved relatively unaffected by the large moves in interest rates, as proved by the current low implied volatility levels, below. Credit markets, after a lacklustre performance in the first quarter, were quite resilient, especially in the US. Peripheral spreads in Europe tightened last week, with the exception of Greece. In this context, L/S Equity, L/S Credit and Event-Driven funds ended the week in positive territory: the geographical bias was a main driver of performance, with Asia outperforming.
Click here to download the full report
