The Lyxor Global Hedge Fund Index, an investable index based on Lyxor’s hedge funds platform which tracks the overall hedge fund universe, was up 5.8% in 2010. The index gained 2.3% in December.
Equity markets finished 2010 on a strong note, with the S&P 500 posting a total return of 6.7% in December. Commodity markets generally followed the same trend. The CRB Commodity Index gained just over 10% on the month, with both the energy and non-energy components exhibiting significant performances. Metals, both precious and industrial, saw similar gains.
The strong December trend in risk assets provided clear benefits for CTAs. Long equities and commodities position, short bond positions made the Lyxor Long-Term CTA Index gained 2.5% over the month, leading to a 10.2% gain over the calendar year. Short-Term CTAs finally found traction in December, with the Lyxor Index up 0.8% (although it fell 0.1% over the whole of 2010).
Global Macro managers were able to harvest gains from opportunity-rich markets; the Lyxor Global Macro Index surged 4.7%. Commodity-oriented managers benefited from continued supply constraints and Emerging Market demand. Macro managers who are bullish were buoyed by risk asset gains, including double digit gains in silver, palladium, and copper.
Spread tightening helped managers in the Lyxor L/S Credit Index gain 1.0% for a 10.3% gain on the year. Some of the same fundamental drivers benefited convertible traders, with the Lyxor Convertible Arbitrage Index up 0.7% for December and 4.9% on the year. Fixed Income Arbitrage provided little excitement, as the index declined -0.4%. Despite this year-end lull, the net result for the Lyxor Fixed Income Arbitrage Index was 9.5% for 2010.
Event Driven managers performed well. The Lyxor Distressed Index gained 0.6%, capping a +5.3% year. The Lyxor Merger Arbitrage Index rebounded from its November decline and posted a +1.3% performance. The proportion of deals with negative spreads eased as we moved into year-end, signalling slightly less aggressiveness in pricing for the new year. Performance for the year was a solid 5.8%. Special Situations managers strongly benefited from equity and credit market performance, gaining 4.3% for the month (10.3% on the year).
L/S Equity managers tended to increase their net and gross exposures during the fourth quarter of the year, and this generally paid off in December. Both the Lyxor L/S Equity Variable Bias Index and Long Bias Index gained 2.7%. Long Bias managers were much more exposed throughout the year to the double digit gains in broad equity markets (and were early in moving to higher net exposures), leading to +6.2% gains for the year versus +2.3% for the Variable Bias Index.
Market-neutral managers benefited from greatly diminished correlations among stocks, meaning that good stock selection was finally rewarded after months of the “Risk On/Risk Off” trade dominating. The L/S Equity Market Neutral Index gained 0.9% to eke out 1.4% on the year. Statistical Arbitrage managers continued to struggle, however. The Lyxor L/S Statistical Arbitrage Index was up a modest 0.2%, bringing the year-to-date number to -1.2%.