The Lyxor Global Hedge Fund index rose 2.1 per cent in March as generally quiet and trending markets yielded a robust month of gains for many hedge fund managers.
Equities rose sharply, credit spreads reversed their widening due to worries over February’s Greece worries, and volatility drifted ever lower.
Managers with a long bias toward riskier assets benefited more than their more conservative peers.
Short-term CTAs rebounded from their recent slide, gaining one per cent on the back of steadily rising equity markets. Similarly, long-term CTAs generated significant performance numbers, rising 4.8 per cent.
Many CTAs benefited over this period due to the generally buoyant markets in equities and metals, as well as the strengthening of the US dollar versus the euro. Short-Term CTAs lagged their potential, as some funds have decreased risk exposures following recent drawdowns.
The Lyxor Global Macro Index was up 1.3 per cent on the month, but performances varied widely across managers. The strategy contains managers with a variety of opinions on the outlook for the global economy, and the returns reflect that fact.
Long equity positions were a strong return driver for bullish managers and short ones were a drag for more pessimistic ones. A weaker dollar versus emerging markets currencies and a weaker euro provided the wherewithal for gains. The fixed income arbitrage managers benefited from the positive environment, gaining 2.7 per cent despite the worries of many commentators regarding the Fed’s exit strategies.
L/S credit arbitrage managers posted a solid 3.9 per cent gain on the month. Similarly, the Lyxor Distressed Index rose 0.6 per cent. Despite lingering difficulties and fears regarding the European sovereign debt situation, spreads in credit markets generally tightened. Gains in the distressed space came from defaulted bond positions and restructurings.
Three significant factors contributed the modest performance of managers in the Lyxor Convert Arbitrage Index, which rose 0.6 per cent over the period. Rallying equity and credit markets provided offsetting drivers, with lower volatility pressuring valuations and tightening credit spreads supporting them. Issuance of new bonds was quite strong compared to recent months, although issuance significantly lags the highs of the mid-2000s.
Performance in the event driven space continued to be strong. The Lyxor Merger Arbitrage Index continued its steady rise, up 1.6 per cent, while the Special Situations Index managers benefited from strong performance in both equity and credit markets and rose 2.7 per cent. Gains in financials provided a significant boost to many special situations managers.
Within the equity space, the Lyxor Indexes show broad-based gains. The L/S Equity Long Bias Index led the pack with 2.6 per cent gains, although the Variable Bias Index followed close behind with 2.0 per cent gains.
Equity strategies with structurally low market exposure were able to generate alpha, but the absolute numbers naturally lagged their directional peers in such a strongly directional market. The Statistical Arbitrage Index and the Market Neutral Index both gained 0.8 per cent.
