The Lyxor Global Hedge Fund Index, an investable index based on Lyxor’s hedge funds platform which tracks the overall hedge fund universe, was up 1.4 per cent in October, lifting year to date gains to 4.3 per cent.
Financial markets continued a number of September’s strong trends into October, although the price trajectories were not quite as extreme.
US equities posted solid gains, and some of the USD-related plays experienced very solid returns.
For example, commodity indexes gained in the high single digits, the euro gained value, gold gained approximately two per cent, and silver gained double digits.
Long-dated treasury yields rose sharply, but short and medium-dated paper was roughly flat on the month.
Credit spreads declined and the net result was continued positive gains in the high yield space. Anticipation of QE2 was the dominant market concern. A less important event appeared to be the US midterm election. Corporate earnings provided no major surprises.
October’s trends generally worked for futures-oriented managers. The Lyxor Global Macro Index gained three per cent on the month, and the Lyxor CTA Long-Term Index gained 3.2 per cent, taking the year-to-date return to 10.1 per cent. Still-popular long positions in long-dated bond futures were a performance drag for many managers, but long positions in most other asset classes dominated the performances.
The CTA Short-Term Index also posted a positive, albeit much more modest return of 0.7 per cent.
Event-driven managers typically lagged their macro-oriented peers. The Lyxor Merger Arbitrage Index gained 0.3 per cent. The strategy was particularly impacted by spread widening for a well-known deal in the chemical sector; arbs had been pricing the deal very aggressively in anticipation of further bids. The Special Situations Index gained 1.8 per cent in spite of declines in many financial firm shares. The Lyxor Distressed Index lost 0.5 per cent.
The Lyxor Fixed Income Arbitrage Index lost 0.1 per cent and the L/S Credit Index gained 2.2 per cent, pushing its year-to-date performance to 10.6 per cent. Managers in both strategies were able to benefit from gains in emerging markets debt and currency.
The Lyxor Convertible & Volatility Arbitrage Index was up 1.7 per cent in October 2010. The strong demand for yield has exacerbated the impact of modest issuance in the convertibles market; the result has been a noticeable tightening in convert pricing.
Directional equity managers had excellent raw material with which to work, and the L/S Equity Long Bias Index gained 1.7 per cent on the month. The L/S Equity Variable Bias gained one per cent.
Less directional equity managers continue to wallow in their struggles. The L/S Equity Market Neutral Index posted a 0.5 per cent decline. The L/S Equity Statistical Arbitrage Index gained 0.6 per cent but is still down 1.4 per cent on the year as managers continue to struggle with the “risk on/risk off” environment.