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CTAs are firing on all cylinders, says Lyxor

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Most funds were up last week, with CTAs significantly outperforming, according to Lyxor.

Long term CTAs were up an impressive four per cent last week (10 per cent YTD), and are now the best strategy in 2014 by a wide margin.
They are generating performance from almost all asset classes, capitalising on their long exposures on equities and the USD, and short on commodities. Gains were especially generated on short Euro and Japanese Yen on FX, and short energy and precious metals on commodities.

L/S equity funds also benefited from the rally in Japanese stocks. This follows two related announcements: firstly from the BoJ regarding the extension of its QQE programme and secondly from the national pension fund which announced it is poised to double its allocation to domestic stocks. As a consequence, Asian L/S equity funds posted strong returns last week, as well as EM funds.  

On the negative side, merger arbitrage continues to suffer. Two funds posted losses in excess of three per cent last week, leading to a 0.6 per cent loss for Lyxor’s Event Driven broad index. American Realty Capital Properties was the main detractor for the worst performing manager. The real estate investment trust lost more than 30 per cent of its value after US authorities put the company under investigation for accounting issues. Meanwhile, exposure to energy and gold mining names was the main factor behind the losses of the second worst performing manager. 

Overall, the Lyxor Hedge Fund Index is slightly up last week (+0.35 per cent) but this masks a wide discrepancy across strategies (CTAs and L/S equity up; event driven down; L/S credit, FI Arb., CB Arb. and global macro flat).
Lyxor expects a recovery in event driven. Deal spreads are attractive and the outcome of the US mid-term elections, which saw Republicans controlling the Senate, should support the external growth plans of US corporates. 

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