The Lyxor Hedge Fund Index was up 1 per cent last week, with Event-Driven strategies outperforming, according to the latest Weekly Brief from Lyxor’s Cross Asset Research team.
Merger Arbitrage funds benefitted from their top M&A positions. Long positions on the NXP vs. Qualcomm transaction and Sky contributed to the bulk of their returns. L/S Equity variable bias funds rode the wave of the market recovery. Emerging and Asian focused specialists outperformed their peers, in line with their underlying markets.
CTAs thrived from the drop in European bond yields, rising energy prices and their long albeit reduced equity allocations. Investors continued to pile into Alternative UCITs in January, adding EUR4.1 billion to the asset class.
That followed an exceptional year in 2017, with net inflows reaching EUR57 billion.
At the current pace of inflows, the assets under management (AUM) of the asset class will likely exceed EUR400 billion in Q2-18. Such appetite reflects the quest for diversification in a context where investors are growing increasingly uncomfortable with the valuation of traditional assets.
Multi Strategy, Fixed Income Arbitrage and L/S Equity funds account for a very significant part of Alternative UCITs’ AUM (respectively 38 per cent, 23 per cent, and 15 per cent).
January saw a shift in flows into Alternative UCITs, with Multi Strategy funds seeing less inflows than usual.
Meanwhile, Global Macro funds saw strong inflows, in particular if compared to their AUMs (+3.5 per cent).
Net flows into Fixed Income Arbitrage funds remained robust, in line with the trend of the past twelve months.
Finally, regarding L/S Equity, it is interesting to note that investors remained constructive on the euro-area. European L/S Equity UCITs attracted EUR58 million in January, on the back of robust macro data and conducive alpha conditions. In particular, the correlation between euro-area stock returns fell to very low levels at the end of 2017. Falling correlations between stocks tend to be positive for alpha generation. Stock correlation nonetheless reverted to elevated levels during the February market selloff.
