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L/S equity shows resilience amid volatile market conditions, says Lyxor

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The Lyxor Hedge Fund Index continued to slide last week as global risk aversion was elevated, according to Philippe Ferreira Head of Research Managed Account Platform Lyxor Asset Management.

Q4 2014 has been particularly difficult, with negative returns in December (-2.4% MTD) in addition to the October drawdown. 

Last week, all hedge fund strategies were down, with Fixed Income managers underperforming on the back of liquidity issues on some names. Lyxor’s Fixed Income Broad Index, which aggregates L/S Credit, Fixed Income Arb and Convertibles Arb is down 6.1% in Q4 (up to 16 December). Global Macro and Special Situations managers also underperformed, with the latter being particularly impacted by exposures to energy and financials in both the equity and credit space.

Amid this difficult environment, the outperformers were L/S Equity managers. On several occasions this year Lyxor has reiterated its preference for Variable Bias and Market Neutral managers. This preference has proven to pay off as both strategies outperformed long biased managers and were able to generate alpha on the back of adequate short positioning. It is noteworthy that European and Systematic L/S Equity managers have done particularly well. Multi strategy funds also continue to bring satisfactory and decorrelated returns. Out of the 25 managers that Lyxor tracks in the L/S Equity and Multi Strategy space, almost half of them are positive month to date. The median performance is -0.3% at a time when the S&P 500 was down 4.6% and the Eurostoxx 50 down 6.2%. Quite satisfactory indeed.  

The bottom has now been reached in this latest hedge fund drawdown. At the FOMC meeting on 16-17 December the Fed signalled it will be patient with rates hikes. Markets reacted positively to this announcement and this will be reflected in the performances of hedge funds next week. Despite this expected rebound, 2014 remains a disappointing year for hedge funds. The first half was satisfactory for Fixed Income and Event Driven managers but the second half was strongly negative. 2014 remains the year of the CTA revival after several years of underperformance. For 2015, Lyxor reiterates its preference for pure alpha generation strategies such as L/S Equity Variable Bias and Market Neutral; Systematic Managers and Multi Strategy funds.

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