The Lyxor Hedge Fund Index gained 0.2 per cent in September (+2.2 per cent in 2012), with 11 Lyxor Strategy Indices out of 14 ending the month in positive territory.
The rise was led by the Lyxor Event Driven Special Situations Index (+2.2 per cent) and the Lyxor L/S Equity – Long Bias Index (+1.5 per cent).
The sharp move in the markets occurred early in the month as the ECB’s plan for unlimited bond purchases came into focus. For the remainder of the month, markets were relatively calm and exhibited low correlations among individual securities. Volatility was low, as markets did not lurch erratically from euphoria to fear. Fundamentals generally overrode emotions, meaning that some risk assets rose in value (e.g. equities and corporate bonds) and some fell (e.g. agricultural commodities and crude oil). This environment benefited nearly all hedge funds strategies, with the exception of CTAs, which often act as the de-correlated portfolio diversifier.
Credit-oriented funds chalked up another positive month to make it four in a row. The Lyxor L/S Credit Index gained 1.2 per cent in September, yielding a 6.4 per cent gain for 2012 so far. The index has gone up in eight of the past nine months. The choice of “shorts” in long/short is becoming more crucial as spreads are generally tighter than they have been in over a year. Even though credit spreads have not moved in a straight line this year, L/S credit funds have exhibited remarkable persistence in navigating the environment and managing exposures.
Equity-oriented hedge fund managers also found continued traction. The Lyxor L/S Equity – Long Bias Index gained 1.5 per cent for a year-to-date performance of 8.7 per cent (the best performance of any of the strategy indices). The index has now gained for four consecutive months. The L/S equity variable bias managers displayed more mixed performance, with the index gaining a more modest 0.4 per cent. Managers had increased exposures as the summer equity rally gained steam but have taken them down a bit as the rally has faded. The Market Neutral Index declined 1.4 per cent and the Statistical Arbitrage Index gained a solid 0.6 per cent (+4.2 per cent on the year).
Event driven managers performed solidly as both equity and credit markets provided opportunities. The Special Situations Index gained 2.2 per cent with good performance by most managers in that space. Outperformers often exhibited heavy exposure to gold or gold miners. The Merger Arbitrage Index continued its positive trajectory with a 0.1 per cent gain. The Distressed Index posted 0.4 per cent gains (up 5.7 per cent year-to-date); the Index has gained every month this year but one.
Global macro funds extended their summer rebound, with commodity and foreign exchange market moves providing the differentiation among funds. The few managers who were long euro or short agricultural commodities easily bested their peers. The index gained 0.3 per cent. Fixed income arbitrage and convertible arbitrage gained 0.9 per cent and 0.5 per cent, respectively. The Fixed Income Arbitrage Index now stands at +8.2 per cent on the year, the second highest return for a Lyxor Strategy Index.
CTAs, both short term and trend followers, posted negative returns this month, respectively -2.3 per cent for the Long Term CTA Index and -1.0 per cent for the Short Term CTA Index. While trend-following CTAs gained on generally rising equity markets (which they were long), they also suffered losses on long positions in agricultural commodities, energy, and the US dollar. The rise and subsequent decline of US Treasury yields meant that the persistent long bond positioning of CTAs did not particularly benefit or detract from performance.
“Hedge fund managers had a hesitant if not cautious view on Europe which led to low directionality and leverage in portfolios. That has started to be adjusted upwards during September,” says Stefan Keller, head of managed account platform research and external relations at Lyxor AM.