Sector rotations caused headwinds for hedge funds last week with the Lyxor Hedge Fund Index falling by 1 per cent, according to the latest Weekly Brief from the Lyxor Cross Asset Research team.
L/S Equity funds underperformed. Variable biased funds were hit by sector rotations out of tech on their long portfolio books. On the other hand, Neutral funds suffered from their aggressive positions through long momentum and short low beta and quality stocks.
By contrast, Event-Driven funds were resilient. Merger Arbitrage funds outperformed as they benefitted from the tightening of deal spreads such as Time Warner / AT&T and Regal Entertainment / Cineworld.
European investors sought out Alternative UCITs funds in October, in line with their performance within the industry this year.
The asset class attracted EUR5bn in October, lifting year to date inflows to more than EUR40bn, a record since 2015. This suggests a strong appetite for risk mitigation strategies and the quest for diversification within portfolios.
Within Alternative UCITs strategies, multi-strategy funds, continued to attract the bulk of the inflows along with fixed income. Most Alternative UCITs strategies attracted strong inflows last month.
Fixed Income Arbitrage remained one of the most appealing strategies. Last month, Fixed Income Arbitrage managers saw EUR1.3bn of positive flows, bringing cumulative flows above EUR10bn year to date.
Investors’ appetite for L/S Equity funds continued unabated, in particular for EU L/S Equity strategies, while interest for UK and U.S. managers stalled.
By contrast, investors continued to divest from CTAs despite their recent outperformance and their ability to offer portfolio diversification.