Lyxor: Long/Short Equity Funds Poised For Recovery

May 18 2016 | 10:54pm ET

Hedge funds recouped early losses this month as markets stabilized last week, according to the latest edition of Lyxor Asset Management’s Weekly Brief.

Lyxor’s Hedge Fund Index gained 0.5% in the week through May 10, the company reported, fuelled by a 1% gain in the Lyxor Macro Index. The outperformance was supported by the strengthening of the U.S. dollar and the recovery in equity indices, Lyxor noted. 

CTAs continued to be under pressure during the period, losing -0.7% on U.S. dollar shorts and longs in metals, which corrected following several positive weeks. 

Elsewhere, the Lyxor Event-driven Index gained 0.8%, driven by positive risk sentiment among Special Situations funds (+1.2%) and positive results in Merger Arbitrage, which gained 0.6%. L/S Equity gained 0.4% but remains down the most YTD of any of the five substrategies, down -3.8%.

Credit funds returned disappointing results for the period, with the Lyxor Fixed Income Broad index dipping -0.4% as high yield underperformed investment grade bonds for the second week in a row and spreads widened in both Europe and the U.S. 

“L/S Equity managers [have] underperformed year to date, but we believe this may come to an end,” noted Lyxor senior strategist Philippe Ferreira in the report. “Up to now, the strategy underperformed as a result of falling markets and the strong rotation in risk factors. Now that equity risk factors are normalizing, we believe L/S Equity managers are poised for a recovery. 

“As a result, we [are] upgrading our recommendation on Market Neutral L/S Equity managers to slight overweight,” he added. 

Lyxor’s Weekly Brief aims to identify trends in hedge fund investing while leveraging the proprietary information accessible through the company’s managed account platform.

Lyxor’s Hedge Fund indices are based on the universe of funds available on the platform determined on a monthly basis to be eligible for inclusion. Approximately 62 funds participate, representing $8.1 billion of assets under management and replicating $241 billion in AUM.

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