The Lyxor Global Hedge Fund index, an investable index based on Lyxor’s hedge fund platform, was down -0.45% in April. Since the beginning of the year the index is flat.
The key drivers for this month’s alternative indices returns lay in the stabilizing markets, with improved liquidity and an overwhelming beta-driven rally.
L/S credit (+4.8%) and convertible arbitrage (+1.6%) were leaders among the strategies. Both benefited from a general spread tightening, and new issuance in both markets points toward better liquidity. Convertible valuations improved toward less depressed levels, as evidenced by convertible implied volatility holding steady even as listed option volatility declined on the rally. Distressed managers, still cautiously short, lost out (-3.3%).
CTA managers faced a difficult month. CTAs focused on high-frequency trading posted losses of -0.7%, and CTAs focused on more medium- and longer-term trends declined 1.8%. Longer-term CTAs faced losses on short equity positions. Short-term CTAs found more novel ways to lose money, for example, on long Mexican peso holdings after the swine flu news broke. Global macro managers traded the same markets but posted gains of 1.3%. Nonetheless, returns varied widely among managers.
Within the event driven space, merger arbitrage and special situations managers both posted losses at the index level (-1.7% and -0.2%, respectively). Merger arbitrage managers exposed to capital structure arbitrage trades (e.g., Citigroup preferred vs. common stock) showed more volatility and worse returns than their peers. Special situations managers with highly defensive positions fared worse than managers with deeper value plays that benefited from the prolonged rally.
Long/short equity managers with a long bias posted significant gains (+7.5%), while the more defensively positioned variable bias managers were generally off (-2.3%). Market neutral funds were down 0.6%, but statistical arbitrage funds nearly broke even with losses of -0.4%.
L.D.