Hedge fund performance was dragged lower last week by high beta strategies such as L/S Equity and Special Situations, according to the latest Weekly Brief from Lyxor’s Cross Asset Research team.
Low beta strategies such as Merger Arbitrage, Relative Value Arbitrage, L/S Equity Market Neutral and CTAs outperformed. On a month to date basis, CTAs also underperformed due to the trend reversal across asset classes earlier in the month. But trend followers were largely spared by the sell-off last week.
Lyxor says: “Based on a sample of 192 liquid funds with data up to 24 October, we provide a deeper perspective on the impact for hedge funds of recent market developments. The overall picture is similar to the one provided by liquid hedge fund benchmarks. L/S Equity and Special Situations strategies were the most negatively impacted by the selloff in October due to their elevated beta. Low beta strategies discussed above outperformed while CTAs stood in between. As usual in such market conditions, there were outliers: we saw a Global Macro strategy up 17 per cent month to date, a short-term CTA up 7 per cent and an L/S Equity strategy up almost 5 per cent. The worst performing strategy was a global L/S Equity, down 13.5 per cent.”
“Going forward, we think that equities are unlikely to enter a bear market in the medium term. But the volatility regime is set to remain high next year. As a result, alternative strategies appear attractive relative to traditional asset classes. Merger arbitrage is one of our strongest convictions for the long run. Meanwhile, CTAs and Market Neutral L/S are now fit for bearish investors expecting a looming recession in the US Finally, variable biased L/S Equity strategies may protect portfolios in downturns and capture eventual market rebounds. Such a strategy on our platform was down 20bps month-to-date (up to 23 September).”
