The Lyxor Global Hedge Fund index, an investable index based on Lyxor’s hedge fund platform, was down 0.3 per cent in December.
Since the beginning of the year the index is up 5.1 per cent.
Several long-standing trends in the financial markets reversed in December 2009, and this change helped separate trend-followers from other hedge fund styles.
Some of the best performing alternative strategies for December 2009 were ones with credit exposure or long stock exposure. The Credit index gained 2.9 per cent, and the L/S Equity Long Bias index gained 2.3 per cent.
L/S equity market neutral and variable bias managers had more muted performance, both at +0.7 per cent.
Despite the persistently quiet markets leading to the lowest readings for the VIX since August 2008, convertible arbitrage managers also managed to continue their strong performance run. The Convertible Arbitrage index gained 0.9 per cent, partially due to the continued tightening in credit markets. The IBOXX Investment Grade credit spread index, for example, marched downward from 106 basis points at the end of November to 85 basis points at the end of the year.
Event driven managers were able to navigate the markets admirably with a gain of 1.5 per cent for merger arbitrage and 0.9 per cent for special situations. Merger arbitrage managers were able to benefit from general spread tightening due to firm equity markets, as well as from positive idiosyncratic events related to specific deals. Many special situations managers have benefited from various gold-oriented plays in recent quarters, but those positions were often performance drags this month.
The price of gold lost momentum and fell from an early December high around USD1,215 per ounce to just below USD1,100 by month-end. Tighter credit spreads and firm equity markets partially offset these gold-related losses.
Global macro and commodity trading advisors generally had a difficult time in December 2009, as a variety of firmly established market trends reversed. US Treasury yields had been oscillating below 3.50 per cent for several months but suddenly began moving up to levels just above 3.80 per cent on market concerns that the recovery might force the Fed to raise rates sooner rather than later. CTAs that were long bonds suffered predictably.
Similarly, the US dollar, which had been losing value for months, gained sharply from USD1.50 per euro to USD1.43 per euro. Crude oil prices followed a U-shaped trajectory on various bits of news, starting from the high USD70’s per barrel to roughly USD70 per barrel mid-month and back to the high USD70s by year-end.
CTA managers suffered more than other alternative managers, with the short-term index falling 4.7 per cent and the long-term index losing 3.3 per cent. The Global Macro index fell 0.1 per cent, with some managers more heavily impacted from these commodity and currency positions than others.