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Hedge funds up slightly last week, says Lyxor

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Hedge fund returns were mainly beta-driven last week, with equity markets on the rise across all regions, according to the latest Weekly Brief from Lyxor’s Cross-asset Research team.

As a result, L/S Equity and to some extent Special Situations funds outperformed. The latter delivered nonetheless disparate results across managers depending on their positions.
 
L/S Credit managers were up too, especially managers with a tilt towards relative value trades. CTA fund returns were mixed, from slightly up to slightly down. In aggregate, gains in long equities were offset by short positions on US bonds and long energy.
 
The positive correlation between equity and bond returns remains a hurdle for investors looking for diversification and protection, a headwind for CTAs.
 
Besides, multiple trends broke during the sell-off. Since then, models suffered from the absence of trends in the commodity, currency and fixed income spaces.
 
Lyxor writes: “The sell-off led models to reshuffle their portfolios. In aggregate, they cut their long equity and commodity exposures, and neutralised the bulk of their European and Japanese bonds. They did not fully benefit from the recovery.”
 
“Historically, CTAs tend to struggle after market corrections. We downgrade the strategy to U/W until new trends emerge.”

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