Lyxor: Hedge Fund Index Gains As CTAs, L/S Equity Strategies Rebound

Aug 28 2017 | 4:13pm ET

CTAs and long/short equity strategies recovered lost ground last week as conditions for quantitative strategies improved, according to a new issue of Lyxor Asset Management’s Weekly Brief, although investors continue to redeem from systematic managers. 

The company’s widely followed Lyxor Hedge Fund Index gained +0.3% in the week though August 22, 2017, as all hedge fund substrategies tracked by the firm were in positive territory. Lyxor’s Long/Short Equity Broad Index led the pack, gaining +0.6%, followed by the CTA Broad Index at +0.5% as quant managers increase exposure to emerging market FX. Conversely, the Lyxor Fixed Income Broad Index lost -0.1% and the company’s Global Macro metric gained only +0.2%.

For the year to date, Lyxor’s Event Driven Broad Index remains in the lead, up +6.2%, although the strategy took a pause last week. Indeed, despite the broad outperformance of the category so far this year, special situations funds are in negative territory month-to-date on the back of negative contributions from both the consumer cyclical and non cyclical sectors, Lyxor said. Global Macro is in second-worst position YTD, down -3.5%.

Underperformance among CTAs is having an impact on AUM, Lyxor’s research shows. Hedge fund outflows tend to track recent underperformance with a lag; between late August 2016 and late August 2017, CTAs experienced a 10% drawdown, according to the Lyxor CTA Broad Index. Frequent trend reversals in the FX, commodity and fixed income spaces have bedeviled many trend-following strategies. 

In typical fashion, investors have started to divest in earnest near the trough, which took place in July. Since then, the strategy is up 2.2% and is on track to outperform other hedge fund strategies this month as trend following conditions improve in FX and EM assets attract inflows in a low bond-yield environment in the developed world.

That said, Lyxor believes the trend following environment remains mixed overall. “Conditions remains poor in the fixed income and commodity segments, and CTAs continue to rely heavily on trends in equity markets,” said Philippe Ferreira, Lyxor senior strategist, in the note. “Considering the fact that critical budget milestones in the U.S could further increase policy uncertainty in September, we believe that risk assets are vulnerable to some profit taking. As a result, we maintain the underweight stance on CTAs, with a preference for midterm models. 

“But we acknowledge the fact that the strategy is now relying on firmer grounds,” he added. “That could lead us to revise our stance in the coming weeks.”

Lyxor also noted that Global Macro, Fixed Income Arbitrage and L/S Equity strategies have experienced sizeable inflows over the last three months, a development consistent across both onshore of offshore alternative funds.

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. Participating funds represent $12 billion of assets under management and replicating $220 billion in AUM as of June 30, 2017.

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