The Lyxor Hedge Fund Index was up slightly (+0.3 per cent) in December, with four out of eight Lyxor indices recording positive results.
CTAs finished on strong gains due to high diversification within portfolios. Long allocations to energy, DM equities and their stance on USD (short JPY, long EM FX) provided them with tailwinds.
L/S Equity Neutral managers lagged due to sector rotation and their sensitivity to momentum stocks.
Long materials and energy positions boosted the L/S Equity Variable bias funds in December.
Merger Arbitrage outperformed their peers, fuelled by tightening of M&A deal spreads including Time Warner vs AT&T and NXP vs Qualcomm.
“For Q1 2018, we anticipate that extra-time of decent growth could support bottom-up strategies, though less than before and with more frequent bumps,” says Jean-Baptiste Berthon (pictured), Senior cross-asset strategist, Lyxor Asset Management. “We would re-weight US L/S Equity funds, but rich valuations favour deep-value and tactical styles. We are O/W EU funds, though alpha could unleash with political delays. We are O/W Japan and U/W UK and Quant funds.
“With regulation risks back in the picture, higher spreads lead us to O/W Merger specialists. We remain O/W Special Situations, but expect more return volatility.
“We expect some challenges for Macro traders, as cautious and synchronised central banks could limit relative value in FI and the pulse in FX. Commodities might be rangy too. We are Neutral CTAs and downgrade Global Macro.”