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Hedge Funds extended gains in early June

Hedge funds delivered healthy performances last week, with beta-driven strategies outperforming.

L/S Equity funds extended their gains in line with their underlying markets, according to the latest Weekly Brief from Lyxor’s Cross Asset Research team.
Special Situations benefitted from both their higher market beta and some of their activist positions. Tightening deal spreads along with the consolidation wave in the Media sector supported Merger Arbitrage. That included positions on stocks such as NXP and Sky, to name a few.
CTAs were the main detractor to the performance, hit by rising bond yields in Europe and the slide in oil prices.
Alternative UCITs funds remained appealing in April. With EUR4.5 billion of net inflows, this brings the industry’s total net assets to EUR394 billion.
The solid pace of inflows to the asset class suggests the quest of diversification and risk mitigation remains centre stage amidst multiple uncertainties. This includes political stress, trade wars, asset price valuation, inflation and monetary tightening.
Additionally, some hedge fund strategies demonstrated their ability to deliver uncorrelated returns during market jitters. The alpha backdrop improved globally, on the back of monetary tightening and the rise in bond yields. This benefits to fundamental stock pickers especially.
Within strategies, Multi-strategy, Fixed Income Arbitrage and L/S Equity gathered the bulk of
Since the beginning of 2018, Alternative UCITs strategies which represent barely more than a third of the total net assets, such as L/S Market Neutral and Global Macro, experienced sizeable inflows.
In April, Global Macro UCITs funds attracted their highest monthly inflows since 2010 (EUR1.45 billion, which represents +7.6 per cent of their AUMs). Thus far in 2018, Macro funds’ returns remained flat as most managers de-risked their portfolios and favoured relative value trades on the back of market instability.
Additionally, in April, Market Neutral funds enjoyed their biggest monthly inflows for the past two years, in line with their steady recent performances.
Fixed Income and L/S Equity remained appealing, but with lesser dynamics. In the L/S Equity space, investors turned region-focused in April with growing appetite for U.S. and EM funds while global funds were sold off.

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