Bringing you live news and features since 2013
Bringing you news, views and analysis since 2013
Picture of a downwards arrow on a graph

28929

What happened to hedge funds’ alpha since the summer?

RELATED TOPICS​

While hedge funds’ performance and alpha were ‘honourable’ until the summer, analysis by Lyxor suggests that they erased about 2.5 per cent of alpha since June, with no turn in sight yet in September.

Lyxor writes: “L/S Equity funds were the primary culprits and victims. In the US, managers have steadily reduced their overall net exposure and leverage since Q2. As a result, they partially missed the summer rally. The plunge in Momentum also cost in June, only partially recovering afterwards. Stock selection in the heavyweight tech, healthcare and cons. discretionary sectors didn’t help enough. In Europe, funds adequately reduced their overall exposures ahead of the summer.”
 
“Unfortunately, many funds were too early in chasing Value stocks, which continued to correct. In Asia, funds had also turned cautious before the summer. However, they were caught in their long tech and Chinese positions, which strongly underperformed main markets. Within the L/S Equity space, neutral funds also suffered. In addition to the major swings in Momentum in the US and in Asia, and in Value in Europe, most other factors also proved volatile. It steadily eroded their returns. Finally, many managers report elevated hedging costs as one notable factor amid declining volatility in developed markets.”
 
“Meanwhile, the diversification from CTAs and Merger Arbitrage was of little help this time. Both strategies were flat or so. CTAs navigated a lack of trends in most segments, to the notable exception of EM markets. The tightening in deal spreads before the summer left limited leeway for Merger managers to extract substantial returns. The positions in Special Situation portfolios did generate some alpha overall, but more than offset by their costly long beta exposure. FI Arbitrage funds remained isolated but remained overall flat. “
 
“In our view, the difficult summer for hedge funds in general, and for L/S Equity funds, largely results from one central cause: worldwide policy uncertainty. The shifts in trade expectations, vulnerable progresses in Italy and UK, the anti-establishment push in a number of DM & EM countries, the intensifying use of economic sanctions all keep market in feverish stance, with limited source of uncorrelated returns. It prevents managers from deploying their strategy successfully.”

Latest News

Global index revenues increased 9.3 per cent in 2023, totalling a record USD5.8 billion, according..
Octopus Investments (Octopus) has announced it has launched a Natural Capital Strategy...
Research firm focused on Alternative UCITS funds, Kepler Absolute Hedge, has published its Market Intelligence..

Related Articles

Trends
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100 million deals announced this month alone...
The trend to buyout among the UK’s smaller defined benefit (DB) schemes continues with a slew of new sub GBP100..
Different flavours
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led, multi-boutique global asset manager with over USD20 billion under management, recently undertook a survey with 204 UK investment professionals, seeking insights into their perceptions and attitudes towards boutique asset managers...
In what is believed to be the first survey of its kind in the UK market, Nedgroup Investments, the investment-led,..
UK map
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be worth billions of pounds in the coming years...
UK local government pension schemes (LGPS) are leading the charge on investment in private markets issuing tenders set to be..
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a possible buyout of EY’s Italian consulting branch...
The trend of private equity firms acquiring businesses in the professional services sector continues with CVC Capital Partners eyeing a..
Subscribe to the Institutional Asset Manager newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by