Hedge funds have started 2013 on a high note, with the Lyxor Hedge Fund Index up 1.6 per cent in January thanks to positive returns from 12 of the 14 Lyxor Strategy Indices.
Most of the best January performers of the Lyxor platform are to be found in the L/S equity space: the Lyxor L/S Equity Market Neutral Index rose by 5.1 per cent and the Lyxor L/S Equity Long Bias Index rose by 3.7 per cent.
Long biased managers maintained net exposures levels at about 60 per cent on average while variable bias funds’ managers kept increasing gross and net exposures to the highest levels seen over the last five years. Moreover, funds reinforced the beta trade by concentrating their sector bets on financials and industrials. Equity long and variable strategies benefited from this bullish positioning and the L/S equity long and variable bias indices returned 3.7 per cent and 2.5 per cent respectively.
More importantly, the start of the quarterly earnings season offered additional opportunities for alpha generators. Market neutral strategies managed to capture those opportunities. Cross sectional dispersion recovered somewhat and volatility continued to ease. Both trends compounded and the ratio dispersion to volatility, the main performance driver of the segment, moved up.
As a whole, market neutral funds stand out as the best performing strategy in January within the Lyxor universe with the Lyxor L/S Equity Market Neutral index staging an eye-catching 5.1 per cent gain. Market neutral systematic strategies benefited as well from the improving trading environment but to a lesser extent and the Lyxor L/S Equity Statistical Arbitrage index advanced 1.9 per cent.
Event driven hedge funds posted mixed performances. Merger arbitrage strategies lagged their special situations and distressed peers as a major deal broke mid-January: European regulators moved to block a transatlantic deal in the package-delivery sector. Merger arbitrage players as a whole recouped their losses and the Lyxor Merger Arbitrage index ended the month up 0.2 per cent. Positions in consumer cyclical, financial and communication sectors allowed distressed strategies to gain 1.3 per cent in January. Special situations managers returns were led by both favourable market directionality and idiosyncratic investments. The Lyxor Special Situations index sported a 2.6 per cent advance year-to-date.
Managers in the fixed-income space were confronted to a more challenging environment where high grade sovereign bonds, so called safe havens, suffered from investors’ disinterest. Arbitrageurs disappointed and the Lyxor Fixed Income Arbitrage index declined 0.6 per cent. Credit related strategies were better off, buoyed by the compression in credit spreads and the Lyxor L/S Credit Arbitrage index added 1.4 per cent in January. The very low volatility backdrop remained detrimental to convertible strategies but the rally in equities and a revival in issuance drove performance. The Lyxor Convertible Bonds Arbitrage Index yielded 1.2 per cent over the month.
Global macro strategies recorded gains on both their net long equity exposures and their overall net short exposures to bonds but positions in foreign exchange and precious metals detracted from performance. The Lyxor Global Macro Index appreciated 1.2 per cent year-to-date. Long term CTAs, broadly long equities and long interest rates nicely caught the onset of the “Great Rotation” out of bonds and into equities. The Lyxor CTA Long Term index advanced 1.4 per cent in January. By contrast, high frequency funds stalled as a whole.
“The normalising trading environment has been particularly beneficiary to market neutral managers recently. Alpha generation has been significant in January,” says Stefan Keller, head of managed account platform research and external relations at Lyxor AM.