Financial markets remained conducive to hedge funds in November. Macro data published over the month was mixed but monetary policy kept erring on the dovish side particularly in Europe where the ECB cut the refi rate. The strong provision of liquidity fuelled the rise in equity and credit markets and allowed a further drop in correlations between (and within) asset classes. Hedge funds took advantage of the rising opportunity set to add alpha to their beta returns, showing solid performances. The Lyxor Hedge Fund index gained 0.6% over the period and is up 5.5% year-to-date.

CTAs performed the best in November, engaging a strong recovery thanks to the equity uptrend and adequate positioning in FX (long Euro, short JPY) and commodities (short gold). It is noticeable that long term trend followers continue to significantly outperform pattern recognition strategies.

The L/S Equity market neutral sub-strategy was the second best performer as the drop in correlations within US and European equities helped neutral managers benefiting from more opportunities in relative value trades.

Long biased strategies also rallied (+1.5%), supported by U.S. funds exposures to mid cap names, consumer and financial sectors. Large exposures to the communication sector, subject to intense M&A activity, provided additional arbitrage opportunities. Finally, variable biased managers also performed well (+1.2%). They kept net exposures relatively low (<40%) and gross exposure relatively high (>200%), a sign of strong conviction on both the long and short books.

Event driven strategies continued to deliver solid returns with the Lyxor Special Situations Index and the Lyxor Merger Arbitrage Index up +1% and +0.7%, respectively. Several idiosyncratic catalysts played out positively. Merger Arbitrage funds benefited from a spread tightening in several transactions and from their more directional special situations portfolios.

Long/Short Credit Arbitrage posted positive gains (+0.4%) in November mainly on the back of tightening high yield spreads in Europe while they widened somewhat in the U.S. Cash credit markets outperformed derivatives in November. Valuation in credit market remained stretched and dispersion anaemic, which prompted managers to keep gross exposure at more than 250% to boost performance from pair trading strategies.

The Convertible Bond Arbitrage strategy was virtually flat amid changing market conditions.

The primary market was extremely active with about $20 billion issuance over the month. Though an active primary market is usually favourable, the massive issuance weighed on valuation and raised concern about investors’ absorption capacity. Convertibles lost some ground relative to their underlying shares.

Macro funds underperformed with the Lyxor Global Macro Index declining 0.8% in November. Profitable long positions on equity and fixed income were more than offset by detrimental bets in the forex and commodity space. Short bets on euro suffered from the currency strength while the continued sell-off in gold weighed on long positions.

“Long term trend followers significantly outperformed in November as both the upward trend in risky assets and currency movements were supportive.” says Philippe Ferreira, Head of Research and External Relations at Lyxor Managed Account Platform.

Most Hedge Fund Indices on Lyxor’s Platform were up in November [1] [2]