Lyxor: Hedge Fund Index Up +0.4% On CTA Surge

Oct 16 2017 | 11:03pm ET

Hedge funds were up again last week on the strength of a continued rebound in global macro funds and a positive reversal in CTAs, according to a new edition of Lyxor Asset Management’s Weekly Brief, while fixed income funds lagged. 

The Lyxor Hedge Fund Index was up a healthy +0.4% for the week through October 10, 201&, the company said, bringing its year-to-date tally to +2.5%. 

Leading the pack for the period was Lyxor’s long-suffering CTA Broad Index, which gained +0.9% in the week to narrow YTD losses to -2.3%. Contrarian positions rewarded trend-following systematic managers last week, Lyxor said, in particular through long bonds and gold and short the U.S. dollar. 

The company’s Long/Short Equity Broad Index rose +0.6% for the week to bring its YTD tally to +5.7%. It’s Event-Driven Broad Index, meanwhile, gained another +0.3% during the period to push its 2017 return to +7.8%, the best-performing substrategy tracked by Lxyor. 

Fixed income funds were down -0.3%, the only substrategy in the red for the week, although the segment remains +4.2% so far this year. 

Lyxor’s focused on global macro performance in its latest brief. The segment has been challenging to assess since mid-2016, the company said, as global macro indices are in positive territory yet returns range from flat to high single digits over the past twelve months. 

“Correlations across these indices have collapsed, suggesting that they now respond to unrelated market drivers,” wrote Lyxor senior strategist Philippe Ferreira in the research note. “Similar observations can be made at a single fund level.”

While they used to move in sync until mid-2016, macro funds have since become very heterogeneous, Ferreira continued. Low economic and market volatilities, as well as rich valuations, drove managers to explore a wider set of themes and with divergent exposures. In particular, a majority of them favored relative trades across regions to exploit the diverging cycles, he said. 

“Given their heterogeneous positioning, the rapid unwinding of the reflation trade early this year [has] translated into elevated return dispersion,” added Ferreira. “This episode of disconnect among global macro funds is transitory in our view. The current economic re-acceleration and the move toward monetary normalization will result in more directionality and a more common set of market drivers.” 

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. Participating funds represent $12.6 billion of assets under management and replicating $220 billion in AUM as of September 30, 2017.

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