Hedge funds delivered healthy returns in November, with The Lyxor Hedge Fund Index up 1.8% for the month, mainly supported by CTAs and to a lesser extent by Event Driven managers.
In November, CTAs delivered their best month in more than ten years, up 8.2%. This has taken place on the back of the combination of rising equity markets and falling bond yields, an unusual combination since the US recovery is getting firmer (real GDP growth in Q3 was revised up at 3.9% last week). Meanwhile, the appreciation of the USD against the EUR and the JPY along with falling commodity prices also contributed significantly to record returns this month.
Event Driven registered a solid upswing in November, recovering a significant part of October’s losses. Most of the gains were generated by special situations funds, which suffered the most in October. This is related to the recent developments taking place in the health care sector (Actavis vs Allergan), whilst recent announcements in the energy sector (Halliburton vs Baker Hugues) led some managers to take positions on the deal.
The current market configuration is supportive for a solid year-end for the hedge fund industry. Repeated dovish signals from the ECB are pushing the Bund yield to uncharted territories while fuelling European risk assets. Concurrently, the OPEC meeting ended with no production cut, leading to an additional sharp fall in oil prices. This proves supportive for CTAs (long fixed income, short energy) and to a lesser extent for Global Macro managers (long European equities but slightly long energy). Finally, we continue to believe that some sub-strategies in the L/S Equity space (Asian managers, Dividend players, Market Neutral funds) should continue to provide diversification and performance to investors. Last week, one of the best performers in the L/S Equity space was a dividends futures fund that profited from a steepener trade on the Eurostoxx dividend index.
