All Lyxor Strategy Indices ended the month of October in positive territory, led by the CTA Long Term (+4.03 per cent), the L/S Equity Market Neutral (+1.77 per cent) and the L/S Equity Long Bias (+1.63 per cent).
The Lyxor Hedge Fund Index posted a positive performance of 1.58 per cent in October (+4.80 per cent YTD).
Hedge funds were helped by rising asset prices and delivered solid results. The Lyxor Hedge Fund Index was up 1.6 per cent in October, with all strategies generating positive results. Strategies exposed to equities performed the best. The median exposure to equities of all hedge funds remained at the top of the range at 33 per cent, suggesting that managers remain constructive.
Equity strategies generated strong performance. L/S Equity Long bias was up 1.6 per cent in October (13 per cent YTD). The managers benefited from the high net exposure to equities (73 per cent). L/S Equity Variable bias managers were up 1.6 per cent; with a net exposure at the end of October at 36 per cent. Sector positioning in US equities increased on financials, communication and materials and decreased on consumer staples. In Europe, the biggest increase in net exposure was in communications while net exposure decreased in industrials and consumer staples.
The Event Driven space also produced solid results in October. Special Situation funds returned 1.1 per cent (10 per cent YTD). These funds are becoming like more traditional L/S equity managers. They maintained a net equity exposure at 44 per cent and net credit exposure of 19 per cent. Merger Arbitrage funds were up 1.4 per cent but managers reduced risk, with net exposure down from 61 per cent to 43 per cent, suggesting less directional views.
L/S Credit Arbitrage funds gained 1.2 per cent as credit spreads tightened in the US and Europe. Funds with long exposure in Europe had particularly strong gains. Funds increased risk meaningfully with gross exposure at 275 per cent from 250 per cent. This probably follows investor’s recent shift in expectations that tapering will not occur before March 2014.
CTA Long Term returned four per cent. Managers are long equities and bonds, having a 38 per cent risk allocation to equities and 13 per cent to bonds. The equity risk allocation is the highest in the past 10 years. CTA Short Term had a 1.2 per cent return but are down five per cent YTD as the strategy continues to struggle and hurt by low volumes and low intra-day dispersion.
Global Macro funds were up 0.9 per cent. Net equity exposure increased to 54 per cent over the course of the month. Gross exposure to short-term rates increased to 110 per cent but decreased on long-term rates to 160 per cent. The opportunity set to profit from views in the short-term rates market was high as markets had priced an imminent rate hike in the US, UK and Europe. This pricing has since reversed.
Equity and macro strategies should continue to benefit from a normalized environment with low correlations. Within the equity space, Special Situation managers have demonstrated an ability to unlock shareholder value.
“Markets remain driven by central banks largesse despite signals of economic recovery. High beta strategies have delivered and hedge fund managers are positioned to benefit from it,” says Philippe Ferreira, head of research and external relations at Lyxor AM Managed Account Platform.