The Lyxor Hedge Fund Index gained 0.4 per cent in August with 11 of the 14 Lyxor Strategy Indices ending the month in positive territory.
The highest performing indices were the Lyxor L/S Credit Arbitrage Index (+1.5 per cent) and Lyxor L/S Equity – Long Bias Index (+1.5 per cent).
Markets in August extended their bullish course from July, supported by better than expected economic news flow and a sentiment of upcoming monetary stimulus in the US and the EU. Driven by hopes of additional non-conventional policy measures, the summer eventually proved to be calm, marked by a strong decrease in equity volatility and significant spread tightening (both on credit instrument and for Southern European sovereigns). This environment benefited nearly all hedge funds strategies, with the exception of CTAs and CB arbitrage.
Credit-oriented funds registered the biggest gains thanks to spread tightening and the corresponding credit rally (especially for lower rated securities). The Lyxor Fixed Income Arbitrage Index gained 1.2 per cent and the L/S Credit Index 1.5 per cent. These strategies now rank first and fourth in terms of YTD performance, with respectively 7.2 per cent and 5.1 per cent return. However, CB arbitrage funds did not profit from spreads tightening, as it was more than offset by the decrease in interest rates and implied volatilities remained low. The index lost 0.6 per cent.
The event-driven space was the second best-performing strategy. The credit rally helped the Lyxor Special Situations Index gain 1.1 per cent and the Distressed Index 0.6 per cent, despite a rather defensive positioning of those funds. Solid equity markets and some revival in deal flow were supportive for merger arbitrage funds. The related index gained 0.4 per cent. Also, many funds benefited from the unbuckling of corporate deals in line with their expectations.
L/S equity funds performed more or less in line with their net equity exposure. The Lyxor Long Bias Index gained 1.5 per cent, reaching a YTD performance of +7.1 per cent. As for variable bias managers, they continue to run a defensive net exposure (even though it started to increase at the end of the month). Losses on the short side were outweighed by gains made on the long book, but the strategy was close to flat, registering a gain of 0.3 per cent. L/S equity statistical arbitrage and market neutral funds profited from pricing corrections resulting from the higher risk appetite in the market, gaining 0.4 per cent and 1.1 per cent respectively.
Global macro funds extended their July rebound while continuing to reap profits from their commodity and equity exposures. The index gained 1.2 per cent. CTAs, both short term and trend followers, posted negative returns this month, respectively -1.7 per cent for the Long Term CTA Index and -0.8 per cent for the Short Term CTA Index. Even though systems now boast a net long exposure on equities, losses were driven by still significant long exposures on the interest rate side. Long USD positions were also hurt by the risk rally.
“While not outright good news, less negative economic news has been supportive as expectations had already been significantly adjusted downwards. This ‘second derivative trade’ has started to be implemented by hedge fund managers, which were able to benefit from better market conditions,” says Stefan Keller, head of managed account platform research and external relations at Lyxor AM.