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Lyxor reports hedge fund performance recovers in February

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Lyxor’s Cross Asset Research team has focused on the performance of value equity funds versus their benchmarks in this week’s report, commenting that value stocks have lost steam but active managers are staying afloat.

The firm writes that value stocks have lost steam in early 2017 as market exuberance faded and investors reappraised the risks of trade wars. “The renewed underperformance of value stocks has taken many investors by surprise as it follows a sharp rebound in the last quarter of 2016. The January reversal has been particularly abrupt in the U.S. The MSCI USA Value underperformed the market by 2 per cent and the MSCI USA Growth by 4 per cent.

“Active investors have nonetheless been able to stay afloat. Based on a sample of 86 value funds invested in the US, we find that the majority outperformed their benchmark in January.

“In Europe, we find a similar proportion of value biased mutual funds outperforming last month. Yet, the recent success of active investing is too short to draw robust conclusions. During recent years, funds with a value or growth bias systematically underperformed their benchmarks, in particular in the US. Such developments also highlight the fact that 2017 will, in our opinion, remain a challenging year for investors. Political risks loom large in Europe and policy uncertainty is elevated in the US. Although we believe that value investing has the potential to regain strength in the coming months, we also believe that the margin of error is significant and such risks need to be diversified.”

Turning to hedge fund performance, Lyxor’s team writes that January saw mixed returns (-0.4 per cent). In particular, trend reversals negatively impacted CTAs (-2.9 per cent in January).

“During the first week of February, hedge fund performance improved markedly. The Lyxor hedge fund index was up 0.4 per cent last week and all strategies were in positive territory. Event Driven outperformed (0.5 per cent last week) on the back of the solid returns delivered by Special Situations funds. It is also interesting to note that market neutral L/S Equity managers are faring much better now compared to last year. Finally, the best performing hedge fund in our sample year to date is an Asian credit fund, up 6.2 per cent and a L/S Equity manager with a value bias, up 3.7 per cent. On the negative side, long term CTAs underperformed, but some short term and medium term CTAs are up 2 per cent year to date.”

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