For the second week in a row, hedge funds have posted a solid performance, lifting the Lyxor Hedge Fund Index (HFI) closer to new highs.

The index was up 0.6 per cent last week, bringing the year-to-date performance to +1.5 per cent.
 
All strategies benefited from the market rally, which saw the S&P 500 reaching 2000 and the 10y Bund yield falling below one per cent for the first time on record.
 
The dovish tone of central banks remains supportive for both equities and bonds. The ECB will likely announce additional expansionary measures this week as inflation in the euro area reached new lows in August (0.3 per cent yoy). In addition, the Fed stated at the Jackson Hole Economic Symposium that “the labour market has yet to fully recover”. Unless the ECB disappoints and the Fed turns hawkish, which is unlikely, hedge funds may continue to post solid gains on the back of their bullish stance on risk assets, says Lyxor.
 
CTAs have benefitted the most from the recent rally thanks to their long positions on both equities and fixed income. The Lyxor CTA index is up in excess of two per cent in August, and is on track to post a very solid performance for the third quarter. Meanwhile, L/S credit gave back some gains this month on the back of the widening of European high yield spreads. This is also true for global macro funds, which have been impacted negatively by short duration positions on both the US and European yield curve.
 
Finally, merger arbitrage recovered nicely in August. The withdrawal of several M&A deals in July resulted in negative performance for that month; yet overall, the strategy is slightly up over the last two months.